How to pay your nanny legally in 2024

The hardest part of paying your nanny legally, and not under the table, is figuring out what needs to be done. That is why full service payroll providers charge $1,000 / year or more to do it for you.  If you are not interested in paying this extra price, the good news is that you can, in fact, do it yourself.

Here is what goes into it.

One time tasks

1. Agree to terms with your nanny.  Consider creating a written Employment Contract, even if you are not in a state which requires one. Also known as a Nanny Contract, it can help clarify expectations and avoid conflicts. It should include things such as hourly and overtime pay rates, pay frequency, taxes withheld (such as Medicare and Social Security), taxes not withheld (such as federal and state income taxes if you choose not to withhold them), daily duties and other expectations,  and required leave notice.
2. Complete an I-9 Form.  Print out Form I-9. Your nanny should fill this out after accepting the job offer but no later than the first day of work. This form indicates documentation you as an employer need to inspect (Drivers license, SS Card, etc) to verify your nanny is legally able to work in the US. You do not need to submit this form but must retain it in your records.
3. Obtain an Employer Identification Number (EIN).  Follow the instructions on the IRS website to register as a Household Employer. The IRS will give you your EIN immediately after verification.
4. Register with Social Security. At least several weeks prior to filing Form W-2 with the IRS in January, register for a Business Services Online account at the Social Security website. As part of registration, the IRS may mail you a password so do not wait until the January 31st W-2 deadline to complete.
5. File a new hire report with your state.  File a New Hire Report with the New Hire Registry for your state.
6. Get Workers’ Compensation Insurance.  Some states require household employers to carry Workers’ Compensation Insurance from a local Insurance Agent. Even if not required in your state, it is still recommended to protect yourself in case your nanny is injured while on the job. Your homeowner’s insurance policy may provide coverage in some scenarios, so this is a good place to start.
7. Other State Specific Requirements.  Depending on your state, you may also be responsible for other state employment taxes, such as State Unemployment Tax.

Each pay period tasks

1. Keep required work records.  The Department of Labor’s Wages and the Fair Labor Standards Act (FLSA), have record keeping requirements which requires you to track hours worked, earnings, deductions, among other information.
2. Calculate Net Pay.  If your nanny will make over $2,700 in 2024, you must withhold Social Security and Medicare taxes (aka FICA) from your nanny’s paycheck, unless your nanny is your spouse, parent, or child under the age of 21. Account for this and any other necessary withholdings.
3. Pay your nanny. Pay the Net Pay amount. Set aside the amount owed by Social Security and Medicare. You will pay both the employee contribution as well as the employer contribution amounts when you file your taxes.

Quarterly tasks

1. (If applicable) Pay State Unemployment Tax. If your state requires State Unemployment Insurance Tax, it is likely due on a quarterly basis.
2. (If applicable) Pay Workers’ Compensation Premium. The provider of Worker’s Compensation Insurance will determine your payment amount and exact due dates, so talk to your local insurance provider for details.
3. (If applicable) Pay Quarterly Estimated Tax. If your employer does not withhold enough from your paycheck and the nanny tax collected is significant enough to warrant a tax underpayment penalty, you can pay the Medicare, Social Security and FUTA taxes withheld quarterly using Form 1040ES. See IRS Form P505 for details. An easier option is to request your employer withhold an increased amount from your own paycheck to cover the additional nanny tax amount.
4. (If applicable) Additional State specific filings.  Some states have additional quarterly filing requirements which may have been noted when you registered with your state.

Yearly tasks

1. File W-2 with the IRS and send to your nanny.  File a W-2 for the previous year with the IRS and send a copy to your nanny by January 31st. To generate the W-2, log in to the Social Security website and follow instructions to Report Wages to Social Security, and Create Forms W-2/W-3. Fill in with information from the Paycheck Nanny app. When complete, download the completed W-2 as a pdf. Email this to your nanny for use in her own tax return.
2. File Form Schedule H with your tax return.  When filing your own tax return, include Schedule H with your own income taxes. This will indicate the Medicare, Social Security, FUTA, and Income taxes withheld to pay at this point. Your tax professional can fill out this form from your records or you can fill in the Schedule H details yourself.

The Paycheck Nanny app can help you with these tasks, from generating a pay stub and keeping records, providing data required for tax filings, and more. Find it in the Play Store for Android devices or the App store for your iPhone and iPad.