One question we often hear is whether a nanny can be classified as an Independent Contractor. The appeal of this idea is that it would allow you as an employer to skip paying FICA taxes (Medicare and Social Security). However, the nanny would instead be the one to pay those taxes, which would be filed with Form 1099 when she pays her yearly income taxes.
However, federal law is clear that a nanny who works in your home should not be classified as an independent contractor.
So rather than classifying your nanny as an Independent Contractor, the correct thing to do is to treat yourself as a Household Employer by issuing your nanny Form W-2 and sharing the FICA tax burden with your nanny.
Now this classification distinction only matters if you will pay your nanny or babysitter $2,100 or more in 2018, up from $2,000 in 2017. If under this amount, then FICA taxes will not apply.
For a checklist of how to pay your nanny legally, see here. This information is also included in the Paycheck Nanny Android app and the Paycheck Nanny iOS app.
For more information about classification of a household workers, see the IRS website. An excerpt from Pub 926 is provided below.
Do You Have a Household Employee?
You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it doesn’t matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also doesn’t matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.
Example.
You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.
Workers who aren’t your employees. If only the worker can control how the work is done, the worker isn’t your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business. A worker who performs child care services for you in his or her home generally isn’t your employee. If an agency provides the worker and controls what work is done and how it is done, the worker isn’t your employee.