What are my tax responsibilities with a temporary nanny? She only worked for us for six weeks while my wife was on bed rest.
Any individual whom you employ to provide services in your home whom you pay directly AND whose total payments in the calendar year meets the IRS household employment threshold ($1800 in 2012) must receive a W-2 from the employer (family) and the employer must pay the payroll taxes. It makes no difference whether the employee is full time, part time, or simply temporary. The IRS is unambiguous about this.
» Historical Household Employment Wage Test Values
- Social Security & Medicare Taxes (15.3% of Gross Wages - employer may collect 7.65% from the employee via deductions. The employee contribution is reduced to 5.65% for 2011 & 2012 only.)
- State Unemployment Taxes where required.
- Federal Unemployment Tax (FUTA) where required.
The employer is solely responsible for the remittance of the Social Security and Medicare taxes. Should the employer fail to collect this tax from the employee via periodic payroll deductions, the employer remains responsible to remit or pay the tax to the IRS. The household employee CANNOT remit their share of Social Security and Medicare tax independent of the employer.
A family will often hire a temporary nanny who may work for just several weeks. Legally, she is your employee the first day she starts with you, and labor law protections such as overtime and minimum wage apply. Your tax liability for the Social Security and Medicare taxes, however, will only kick in if you pay this individual the annual threshold amount ($1800 in 2012). Your tax liabilities, therefore, are not a factor of whether she is an employee or not, but rather how much you pay her.
TIP: Never make any payment to a nanny, temporary or permanent, without first obtaining the nanny's full legal name, Social Security Number, and permanent mailing address.
Be advised that unemployment tax liability thresholds are lower - between $500 and $1000 depending on the state. So it is possible to have a temporary nanny for whom you do not have to pay the Social Security and Medicare taxes, but do have unemployment tax liability. These situations should be thoroughly discussed with your nanny tax preparer.
The IRS requires that you provide your temporary nanny to whom you paid between $600 and the annual liability threshold with a Form 1099 MISC and file the appropriate copies with the IRS (careful how you complete, these wages are not subject to SS/Medicare taxation or to self-employment tax). You may voluntarily provide and file a Form 1099 MISC to any nanny you pay any amount. This is a general employer obligation - not specific to household employment.
If you wish to avoid this obligation, we recommend that you engage a temporary nanny that is paid by the referring agency. This is a bit more expensive, but can save you all the tax headaches. When you hire through the agency, you make your payments, for example, to 123 Nanny Agency Inc. - and not to Mary Jones.