Nanny tax experts Breedlove and Associates share the reason why.
Nannies who work for one or more families on a temporary basis usually have lots of tax and legal questions. There are special provisions in the law for “casual babysitting,” so here’s what you need to know:
Temporary nannies are still employees; not independent contractors. They are employees of the family.
A nanny working in a family’s home — whether the job is temporary or permanent, part-time or full-time — is an employee of the family. It is illegal for the family to treat you as an independent contractor (a designation which increases your tax burden significantly). The “employee” classification is not determined by how much you are paid or the amount of time you work for the family; it is determined by the nature of the work performed. The IRS has ruled definitively that caregivers are employees of the families for whom they work.
Your employer may not need to withhold taxes from your wages.
Household employment tax requirements are determined by the amount of the gross wages paid to an employee. In 1995, the IRS modified household employment tax requirements to exempt temporary employment and casual babysitting from the tax process. This is sometimes referred to as the “Casual Babysitting Exemption.” As a temporary employee, if you earn less than $1,900 (2014) in a calendar year, your employer is not required to withhold any taxes from your salary.
However, if you earn more than $1,800 (2013) from a family in a calendar year, your employer — the family — must meet the household employment tax withholding and reporting obligations. They are required to withhold payroll taxes from your wages and then report and pay those taxes to the tax agencies quarterly — along with some employer taxes that provide you with retirement and unemployment benefits. At the end of the year, the family should give you a Form W-2 detailing your wages as well as the taxes that you have pre-paid throughout the year.
If your employer fails to withhold taxes and file employment tax returns, they are breaking the law — and you will not be entitled to the retirement and unemployment benefits mentioned previously. Hopefully, you won’t face that situation. But if you do, the best thing you can do is make sure you avoid tax and legal problems for yourself by reporting your wages and paying your income taxes at the end of the year.
You are responsible for keeping track of your wages.
If you are paid less than the $1,900 (2014) threshold per family you work for, you will most likely not have any taxes withheld from your pay since your employers are not obligated to do so. However, temporary nannies are still required to track the amount of money earned from every employer — no matter how little you are paid. You are responsible for reporting all wages earned during the year by filing annual income tax returns — even if your wages are not high enough to trigger a tax payment.