“The IRS considers that babysitter or nanny that was working in the home for the family over the course of the summer to be an employee of the family, which makes the family a household employer… Families should make sure they tie up all those loose ends before they move on with the rest of their year so that it doesn’t make tax time come April even more complicated than it has to be.”
Source: Back-to-School Season Means Catch-up Time for Nanny Taxes
Nice little reminder article of the thresholds and requirements for taxation of household employees (hint: it’s more likely that you owe it than not) — but remember that the nanny payroll company cited in the article is but one of many out there. Because it’s such a specialized area, they tend to be pricier than I think is reasonable, but it’s better than trying to do it yourself. Here are some companies to consider:
Some companies offer lower prices than others, but beware — make sure you’re getting all the features you need:
- Will they apply for federal EIN, state registration and unemployment accounts for you? This is a royal pain and it’s best to outsource these steps.
- Will they prepare and file quarterly and annual payroll taxes, as well as issue W-2s, or is this an extra charge?
- Do they offer direct deposit?
- Are their charges per paycheck or per month? If your nanny gets paid every week, this difference can be substantial.
- Will they prepare your annual Schedule H for you?
If you’ve found an affordable household employee payroll service that performs all the above tasks, please mention them in the comments! I’m always looking for good companies to recommend to clients.