Legal Nanny Tax Laws
- IRS Publication 926 details the tax regulations for private household workers.TAX TIME image by brelsbil from Fotolia.com
Internal Revenue Service (IRS) Publication 926 requires individuals paying another person more than $1,700 for household related services to pay three federal employment taxes for that individual. These taxes, together referred to as the "nanny tax," cover Social Security and Medicare taxes, and the federal unemployment tax. Individuals employing nannies or other private household workers may also owe state unemployment tax, and possibly state disability tax. - Taxpayers employing a household employee, including but not limited to a nanny or babysitter, must pay the nanny tax unless the household worker is the taxpayer's spouse, parent or child under the age of 21. You likely do not have to pay the nanny tax if you hired an unrelated person under the age of 18 to provide babysitting services, but who did not work for you full-time in the current calendar year. Additionally, according to IRS Publication 926, a parent who pays another person to provide day care services from the other person's home, generally does not owe the nanny tax.
- The tax is applicable to household workers other than nannies and babysitters. Some examples of other workers frequently retained by property owners to provide household-related services include caretakers, cleaning people, domestic workers, drivers, health aides, housekeepers, landscaping workers, maids and private nurses. For instance, if you hired a nanny, a maid and a driver, and paid them each $2,500 in 2010, you must pay the nanny tax for all three workers. Essentially, you owe the nanny tax if you paid a single individual more than $1,700 in the 2010 tax year.
- Some households unknowingly hire workers who are not legally authorized to work in the United States. According to the Internal Revenue Service, hiring or continuing to employ an illegal alien who cannot legally work in the United States is against the law.
