Families are heading into the most stressful fall in memory! Working families are scrambling to find childcare and education assistance for their children since many schools will have some version of virtual learning this fall. Parents are juggling their schedules and seeking options for hiring help at home.
Parents are getting creative and are hiring local college students as nannies/tutors to help them with the educational burden of virtual learning. If you hire a nanny/tutor, you want to understand the rules and the benefits to doing this correctly.
Household workers, including nannies and educational assistants, are your employees if you can control how and when they work. If you pay your worker more than $2,200 in a calendar year, they should be paid as employees and you are required to withhold Social Security and Medicare (FICA) taxes from the wages of your household employee*. You, as the employer, must pay the employer’s portion of FICA, state unemployment and federal unemployment tax (FUTA.) These are reported on Schedule H of your annual tax return.
No one wants to be surprised by a large bill at tax time, so we recommend a payroll service specializing in household employees. HomePay from Care.com or SurePayroll are two popular resources for payroll, HR and tax reporting for household employees.
Some families are creating co-ops, also called a nanny share. In this situation, the IRS views each family as a separate household employer, even if the employee is working exclusively in one home. Families should pay the household employee separately and withhold the appropriate taxes. The families must make sure that the employee is paid at least minimum wage for each hour that they work. (This will require good communication if the employee is working for one family more than the other.)
Compliance to these guidelines will allow you to take advantage of the tax breaks that come with paying for childcare. If your employer offers a dependent care FSA, you can use those pre-tax funds to pay for your nanny. Additionally, money that you pay for childcare for children under the age of 13 can qualify for the child and dependent care tax credit that can save you up to $2,100 on your federal taxes.
*The following are exemptions from household employee status. Don’t withhold or pay social security and Medicare taxes from wages you pay to:
- Your spouse,
- Your child who is under age 21,
- Your parent, unless an exception is met, or
- An employee who is under age 18 at any time during the year, unless performing household work is the employee’s principal occupation. If the employee is a student, providing household work isn’t considered to be his or her principal occupation.
HomePay Price & Services $75/month
SurePayroll Services $40/month plus $40 fee for annual reporting