Do You Pay Taxes on Your Nanny?

Updated on January 15, 2013
S.R. asks from Cincinnati, OH
23 answers

Hi All,
I realize this might be a risky question to answer, but I assure you I'm no narc. But if you don't want to publicly post your response, I would still appreciate a private message if you have any advice. Thanks!

So we hired a nanny for the first time. With our older two children we sent them to in-home daycares, some of which paid income taxes, some of which didn't. But with infant twins, it just made more sense to have someone come to the house.
We're aware that technically we should be paying taxes on the wages we pay our nanny. But we also get the impression most people don't do this. We're torn because on the one hand we're law-abiding citizens and we think taxes are important. On the other hand, money is really tight right now, and if other people don't do this, why should we be the suckers.

So if any of you wise Mamas out there have any advice, it'd be much appreciated!

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answers from Columbus on

"Technically" you're aware you're supposed to, but you "get the impression" people don't? Seriously?
So, if you can get away with breaking the law, why not?
"Why should we be the suckers?" How about because it's the right thing to do. The best indicator of moral integrity is how we act when we think no one is looking...

8 moms found this helpful


answers from San Francisco on

I used to be a nanny. Please pay taxes and do things the right way. It would be awful if you got audited by the IRS. You will feel better if you know you are doing the right thing.

What goes around, comes around.

7 moms found this helpful

More Answers


answers from Washington DC on

well, you can issue her a 1099, report how much you paid her, and she'll be responsible for her taxes.
but if you do that i hope you will have discussed it with her in advance. if she *thought* you were paying her taxes and gets nailed with it now, it could cause some unpleasantness.
those of us who DO pay our taxes don't actually appreciate being termed 'suckers.' a sucker is a leech, no? and people who don't pay their taxes are.......
ETA i don't think you're correct in this instance, jo. it *may* be a wash if she doesn't pay, and the employer doesn't take the deduction, but the IRS isn't so much about us deciding if that wash is okay. if that were the case, under the table work would be just fine all over, and it ain't.

8 moms found this helpful


answers from Miami on

Your nanny might want to work "under the table" so that SHE doesn't have to pay taxes, but she's hurting herself in the long run. It means that she's not paying into social security. In order to receive social security and medicare/medicaid benefits upon retirement, people must pay into the system for 40 quarters.

It's best to do this by the book.


7 moms found this helpful


answers from Pittsburgh on

I have always used daycare centers, so my care providers have always paid taxes. But -

Something to consider:
If you don't report properly when you pay your nanny, you also don't get to claim the child care tax credit when you file your income tax return.

6 moms found this helpful


answers from Albuquerque on

We did pay taxes on our nanny when we had one for our twins. You could probably get away with not paying taxes, but it's kind of like driving when you've had three drinks, or taking a pack of gum from a convenience store when the manager is in the back room. You *can* get away with it, but you shouldn't.

No harassment meant here... but it's not just a technicality. It's the law, and it's the law for a very good reason. Our tax dollars fund all sorts of programs -- some we probably agree with and some we don't. If every person who could get away with paying less taxes than they were legally obligated to do so, stopped paying... there simply wouldn't be enough money to meet our national commitments.

5 moms found this helpful


answers from Grand Forks on

I do child care. As a child care provider I pay taxes on my earnings, the parents who pay me claim it as a tax deduction. I am in Canada, but I can't imagine it is any different in the US.

5 moms found this helpful


answers from Washington DC on

I don't have a nanny. Never have. However, if I am employing someone - then YES, I would be obligated to pay their taxes unless I set them up as a "self-employed" and give them a 1099 and make them responsible for paying their taxes.

Contact the IRS and ask them how you should handle it. Ask the difference between making the nanny a 1099 (self-employed contractor) vs. the employee...

You can even consult a tax accountant who can guide you down the path of taxes. Yes, it will cost you money to retain one and get their advice, but wouldn't it be more beneficial to you and for peace of mind - that you get the information from the horses mouth?

5 moms found this helpful


answers from Washington DC on

"On the one hand...we're law-abiding citizens." On the other hand, "Why should we be the suckers?" ....Can you see how that reads to other people? It's hard to believe the first statement about wanting to obey the law when you follow it with what amounts to "most people don't do it so why should we."

Find out what you have to do to be above-board and legal. Others have posted great advice here about how to file legally to report what you pay her so that she, not you, has to do the work of paying taxes -- if she does not, the IRS will come after her, not you. Do what you must to keep the IRS happy (and your state tax department too) because they can and will come after you legally if you don't do what you know you need to do.

I'm so hard on this issue because my mom had "nannies" who cared for my grandmother in our home for years. My mom always made the effort to do the proper paperwork though it would have been so very easy for her to just hand them cash and not bother with taxes. And money was tight for my mom, too, trying to care for a sick, very elderly person at home on a retiree's income. But she took out the taxes (more effort than you would have to make to just file the income statement). A few of these women hated that she did it but she said she would not cheat the IRS for anyone; it wasn't worth the risk to herself. If your nanny fusses and fumes and tries to get you to pay her under the table, find a new one. My mom lost one caregiver who insisted on only being paid under the table but my mom refused. Before you say, "But it would be so hard to find another nanny if that happened," believe me, it was not easy for my mom to find decent caregivers for an elderly, homebound person either. But she was not going to risk being audited or otherwise having to pay a penalty just because some caregiver couldn't be bothered about taxes.

5 moms found this helpful


answers from Portland on

You don't have to pay taxes on your nanny but you do have to file a statement that says how much you pay her so that she can pay taxes on her income. It is required by law for her to file taxes. If you don't report then she'll have difficulty.

I urge you to talk with a tax consultant to know what is legally required. Or research this issue on the IRS web site.

Whether or not you obey the law is up to you. I would file. Not because I might get caught but because it's the right thing to do. Money is tight for our country, too. LOL

4 moms found this helpful


answers from Dallas on

Not a nanny situation here but we do have a couple of guys who we will pay a commission on their sales.

At the end of the year, we do issue a 1099 to them which states how much we paid them. For myself, husband and daughter, I process W-2's.

When in doubt... ask a reputable CPA. You don't want the IRS coming for you.

4 moms found this helpful


answers from St. Louis on

No one pays taxes on their nanny, you can claim their wages as an expense.

Here is the thing, in general it is a wash so far as the IRS is concerned. The way it is now you are taxed on the money you pay her because you are not deducting her wages. If you claim the deduction then she is required to claim the income and they tax that.

There tends to be more income for the government if the wages are claimed but really not enough to make a difference.

Oh, everyone that does claim them does so under a 1099. You are not in the business of childcare, you are hiring them as an independent contractor. The only way you would get into payroll taxes would be if you employed them and sent them to work for others.
Okay all of this is odd. Either I am not understanding the question or the people answering are not understanding the question. I am assuming you are paying her cash, under the table if you will. The thing is in this particular arrangement there is a deduction available to the person paying the wage if it is claimed. So if you are paying cash you are already paying her taxes. If you claim her then she is paying her taxes and you are taking a deduction.

The thing with other under the table transactions, say you hire your neighbor to remodel your home, then you are hiding a taxable event that is not basically revenue neutral. That is bad. This is not so much because it is basically revenue neutral. The taxes will be collected it is just a matter of from who.
Jill when you look at marginal rates, deductions, ceilings, all that stuff, in real money to the IRS there isn't a hell of a lot of difference. In general a full time nanny that is her income so unless she is married and her husband makes a lot her marginal tax rate is a lot lower than yours. So if you are not claiming her wages and taking the deduction you are being taxed on that 5,000 at say 20 where she would be taxed say 20,000 at ten and after her standard deduction. In real money it is about the same.

4 moms found this helpful


answers from Sacramento on

I run a daycare with an employee, and I pay taxes on her. Whether other people do it or not isn't really my concern or business... what is wise to do in a business relationship is to pay the taxes you're supposed to pay.
If you aren't paying taxes on what you're paying your nanny and you get audited, you get dinged on it big-time and so does she. If you think money is tight now, think about what it will be with a big fat IRS debt hanging over you.
Just my 2 cents...

3 moms found this helpful


answers from San Francisco on

Do you plan on running for office? Is your "Nanny" illegal? Do you pay cash? Is she/he on welfare? Are you a "sucker" for following the law? The honest answers you give to any of these questions will truly determine if you are "law-abiding citizens". And yes, some people get away with lots of stuff and some people get caught and/or turned in by the people the have employed.

2 moms found this helpful


answers from Wausau on

Nannies are considered Household Employees by the IRS.

If you pay her more than $1800 per year (or more than $1000 in a 3 month period) then the proper and legal course of action is to issue her paychecks and paying the employer portion of social security (6.2%) and medicare (1.45%). If her pay is less, you do not.

This is Federal income tax advice, if you have State income tax you need to check that too.

In addition, if a nanny is being paid 'under the table' then this time period will not count towards the Social Security calculation when she is retired. A smart person looks at the big picture, not just at Today, so I hope your nanny is bright enough to insist on being official.

2 moms found this helpful


answers from Boston on

It's in every tax progam and the IRS tax booklets. You are employing her in your home. Yes,my understanding is that it is your legal obligation to payhalf of her social security taxes. I think it's great you are asking the question, and I think you know what you should and probably were going to do anyway. All my best.

2 moms found this helpful


answers from Oklahoma City on


One of the people that I was a nanny for WAS a CPA and they never held out a penny of taxes or SS on me, they filed my wages at the end of the year on their taxes for the child care benefit. They went by the law. They didn't owe taxes on me because I was not employed by a business, I was babysitting, not an employee.
They are technically just a babysitter. If they live in and receive other compensation then I'd say you should pay taxes on them.

They are contract labor, they work for you and they are responsible for paying their own taxes. Do you pay taxes on what you pay a plumber? No, of course not. Do you pay taxes on a lawn boy or a pool boy? They may come and do their work every week and earn a lot of money from you each year. They do NOT get taxes paid on them because they are a contract laborer. They have a particular job, they come do that job, then they get paid. They pay their own taxes on their own income.

You can claim your money you pay to them for child care with your checks even without their ss #. That's how my clients did it if they didn't get a letter from me stating what moneys they paid me during the year.

I didn't get asked very often for a letter. The parents just filed on their own checks.

I was a nanny for years. I also worked in formal child care and actually owned a child care center. As an owner I had a federal tax id number and hired people to work in a business, one that paid taxes, had insurance, had a federal tax id and state tax stuff, I was a business hiring an employee. I did also have those substitutes who I hired to do some hours. I did not take out taxes on those employees. If I had taken out SS and Federal income taxes then I would be matching those funds as required by law. Since I was paying them a flat rate I did not hold out taxes.

I think the only one who can answer this question legally is your CPA. I would not be surprised to hear that they said this person is not a taxable person.

And if you think this is not right then next time you have a mechanic fix your car be sure and tell them you're holding out taxes for them on their pay, or the roofer, they won't like it that you're doing their accounting for them. They are running their own business just like a nanny is running her own business.

1 mom found this helpful


answers from Minneapolis on

If your asking if you HAVE TO, it depends on how much your nanny earned over the the course of the past year working for you. If your nanny earned under a certain amount, then neither of you are required to pay tax on that wage.

1 mom found this helpful


answers from Chicago on

my boss does not pay taxes on me. m a nanny. At the end of the year he gives me a sheet saying what he is claiming that he paid me. I then claim it as income on my taxes and pay my own taxes. Having said that the sheet he gives me has the max amount the government allows for the daycare credit. $5000 per year is the amount allowed. So we both claim that he paid that much.

1 mom found this helpful


answers from Toledo on

This should have been discussed at the time of hiring. Yes they should be taxed but you will loose your nanny if you tax her and don't pay her enough to offset the taxes (if you're paying $12+ per hour)
As a nanny I can say it's frustrating when families want to tax. If I knew I was getting taxed I would automatically expect a couple more dollars per hour. If you 1099 your nanny they will have to pay double taxes which means their income drops significantly. If you're talking for this years taxes (from 2012) then be aware that your nanny will likely quit after having to foot a huge bill. If they weren't aware of it, then I doubt your nanny was saving up for the huge tax bill that will be coming her way.
On the contrary I would expect to write off a daycare. That's a business and if it's not being run like a business then I would be skeptical of what other rules aren't be followed. As a business they are not paying as a 1099 employee.



answers from New York on

I understand bc I get the impression a lot of people don't pay taxes on their nannies. Seems the norm... We typically have though for what that's worth. It also can be kind of negotiated into the nanny's pay rate. They typically understand if it's a bit less per hour bc you're paying taxes. As for Jo's comment, I'm confused. We have a CPA doing our taxes and $5k a year is deductible but I've never heard of more than that. And a full time nanny is way more than that. A nanny's salary being deductible would be great! But I would think that's only if you have a small business and claim the nanny is an employee of that business... I can't deduct a weekly landscaper or house cleaner... I know shes an acct buti think wrong on this. Either that or our CPA needs to get us a big refund.



answers from Cincinnati on

I did not when I had a sitter. I took my son to someones house.
I thought you could make so much before taxes needed to come out. I am thinking its $2,000 per year but that might not be true.



answers from San Francisco on

This is something you really should be talking to your nanny about. It doesn't matter if I or anyone else on this site pays or not; what matters is if your nanny intends to file an income tax return and list the wages you paid her. If she does, there will be a paper trail leading straight to your door. You are considered her employer; she is not self-employed if she comes to your house at a regular time each day for a set number of hours. If she files and you haven't paid taxes, you will have to pay them plus penalties.

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