How To Pay A Nanny

If you’ve never paid a household employee before, you might have questions about how to pay a nanny. Fortunately for you, paying your nanny the legal way is pretty simple.

Are Nannies Independent Contractors?

In most cases, a nanny is considered a household employee. According to the IRS, a household employee is:

• Someone who performs services in or around your home
• Someone who works for you, and you control what work they do and how it is done

If your nanny is a household employee, you will typically have to pay nanny taxes. These taxes include social security and Medicare taxes (FICA), and Federal Unemployment Taxes (FUTA).

How Much Are Nanny Taxes?

For 2023, households that pay a household employee $2,600 or more during the year will be required to withhold and pay Social Security and Medicare taxes. These taxes are equal to 12.4% of cash wages and are split evenly between you (the employer) and your nanny.

Household employers that pay an employee $1,500 or more in a calendar quarter will be required to pay FUTA tax. You may also be required to pay state unemployment taxes. FUTA tax is 6% of cash wages. This applies to the first $7,000 in wages earned during the calendar year (often called the federal or FUTA wage base).

There are some rare instances where you are not required to pay nanny taxes. You aren’t required to pay nanny taxes if your nanny is:

• Your spouse
• Your child who is under the age of 21
• An employee under the age of 18 who does not provide nanny services as their principal occupation
• An employee under the age of 18 who is a student

If your parent is caring for your child, you are not required to pay nanny taxes if both of the following conditions are met:

• Your child is under the age of 18 OR has a physical or mental condition that requires care for at least four consecutive weeks in a calendar quarter, AND
• You’re divorced and haven’t remarried, you’re a widow/widower, or your spouse has a physical or mental condition that prevents them from caring for the child for at least four consecutive weeks in a calendar quarter

The Benefits Of Paying A Nanny Legally

The extra time and expense associated with paying a nanny may seem like a burden, but taking the time to do things legally also offers several benefits to you as a household employer. Here’s why you should pay your nanny the legal way.

How Much Should A Nanny Get Paid?

According to Care.com, the average wage for a nanny in 2023 is $18.40 per hour. However, this number may be higher or lower based on where you live. In cities where the cost of living is much higher, nanny salaries may average $21 or more per hour.

You should also consider:

• The number of children that will be cared for
• Your nanny’s experience level
• CPR or other first aid certifications
• Any additional household responsibilities (cleaning, errands, etc,)

Do I Need An EIN Number To Pay A Nanny?

According to the IRS: “Anyone who performs services for you is your employee if you can control what will be done and how it will be done.” Since you will be paying, setting hours for, and overseeing the responsibilities of your nanny, they are considered a household employee.

As an employer, there are specific tax requirements that now apply to you. For tax administration purposes, you will need an Employer Identification Number (EIN).

Fortunately, applying for and receiving an EIN on the IRS website takes just a few minutes.

• Set your legal structure to “Sole proprietor”
• Select “household employer”
• Enter your personal information
• Add your physical and mailing address
• Add state, county, and hire date
• Select whether you want to receive your EIN instantly (via email) or in up to four weeks (by mail)

How To Legally Pay A Nanny In 10 Steps

Once you’ve hired your nanny, it’s time to figure out how to pay them properly. This ensures they get compensated for their hard work, while also making sure you follow labor and tax laws. Here’s how to pay a nanny in ten easy steps.

The Best Payroll Software For Paying Your Nanny

Now that you know the basics of how to legally pay a nanny, let’s talk about some software that can help you out.

The best payroll software for small businesses will all offer helpful features for those employing nannies in their homes. There are, however, more specific payroll programs that are tailored toward nanny paychecks.

The best options for nanny payroll software are:

• SurePayroll
• HomeWork Solutions
• NannyPay
• NannyChex
• Savvy Nanny
• Payroll by Wave
• Payroll4Free

The Bottom Line On How To Pay A Nanny

Paying a nanny legally is the best way to ensure you comply with tax and labor laws and regulations. This helps prevent you from being penalized for failure to pay taxes on your employees as required. Additionally, paying your nanny the right way offers advantages to them — such as unemployment benefits — and helps ensure they get paid on time, every time.

If you’re new to payroll or paying a household employee, don’t worry — there are plenty of resources available to help make sure you get it right.

Cut out the guesswork by opting for a nanny payroll software that offers loads of benefits, from time tracking and tax calculations to storing crucial payroll records and making sure you file and pay your taxes on time to avoid hefty penalties and interest.

How To Pay A Nanny FAQs