Are you thinking about hiring a nanny? If so, I recommend planning ahead and making sure you have the information you need about your tax obligations.
You’re an Employer Now!
When you hire a nanny, you must generally apply for an Employer Identification Number (EIN) with the IRS. Why? Because you’re an employer now! In addition to an EIN, you’ll need to apply for an identification number with your state revenue department to make deposits of tax withholding. And you’ll probably have to set yourself up with your state’s unemployment agency (in Iowa, it’s Iowa Workforce Development).
Once that’s done, you’ll need to:
- Have the nanny fill out a Form I-9 and W-4 (and possibly a state equivalent to the W-4, such as the Iowa W-4).
- Withhold income tax and FICA (if the wages you pay your nanny are high enough).
- Set aside funds to pay your share of FICA, as well as any unemployment taxes you might owe.
- Set aside the federal taxes withheld from your nanny’s paycheck (this will be accounted for on your personal 1040 at tax time).
- Periodically deposit your state tax withholdings and unemployment taxes.
- Issue your nanny a W-2 at the end of the year.
- Complete Schedule H when you file your personal Form 1040. The Schedule H will account for federal taxes withheld from your nanny’s paycheck, as well as your share of FICA and federal unemployment taxes.
Aside from consulting a tax professional for more guidance, a good resource to consult is IRS Publication 926.