NOTE: Park Slope Parents strongly recommends consulting with a professional about these steps. The fines associated with paying incorrectly and time it takes to resolve are well worth the peace of mind that comes with double checking.
Skip to...
--- Articles and Publications
--- FAQs
--- Setup
--- Ongoing
--- Assistance with Filing
--- Checklist for Paying Nanny Taxes
--- Dividing up Taxes between Nanny and Employer
PAYING ON THE BOOKS:
Park Slope Parents takes paying on the books very seriously; it's the law. If you pay a nanny more than $2,700 for 2024 you are required to pay Social Security and Medicare. You may be able to use a pre-tax flexible spending account and child and dependent tax credit which can help offset the extra cost of paying on the books. If you paid your nanny more than $500.00 in a quarter you must register as a New York employer and pay unemployment tax (both federal and NY State). You must also pay disability and perhaps workman's compensation. Overall it's about 15% more to pay your nanny on the books.
We've heard stories over the years of people who have been caught in nasty post-employment snarls paying back taxes, unemployment and overtime for nannies. We advise that you hire a service to help you with tax prep as it can be complicated. We have a list of PSP member reviewed nanny payroll services here. However, many people who pay on the books stay organized by using spreadsheets at home and setting up calendar/email reminders for when to file the appropriate paperwork. We partnered with HomeWork Solutions to develop a step by step guide here: The NY Nanny Payroll Quick Start Guide.
On the Books: Benefits for your nanny
- You help your nanny accumulate retirement benefits.
- Your nanny has a written record of a work history tied to their SSN (or
employment number). This record can help them buy an apartment/house that they
might not otherwise qualify for. (Note: You can also pay a undocumented
worker on the books.)
- Your nanny may qualify for earned income credits.
- Your nanny will have unemployment if you need to dismiss them. (Note: Your
nanny can apply for unemployment and receive it even if paid off the books.)
- Your nanny will accrue Social Security, Disability and Medicare benefits.
On the Books: Benefits for You
- If your company has a childcare flex account you can pay using pre-tax income to offset costs.
- You can get childcare tax credits (which help offset the extra costs). (IRS form 2441)
- You can sleep better at night knowing that you are doing the "right thing."
- You don't need to worry about penalties or feel threatened by a former nanny about "turning you in."
- You don't risk losing your professional license if caught.
Past data shows that employers say they pay their nanny off the books at the nanny's request, but please remember that you, as the employer, must take the responsibility for penalties, unemployment, back taxes and fines.
As one parent says: "The fact that we pay our nanny on the books puts our relationship on a very professional and respectful level. In return, she is more than flexible with time off and we basically help each other out with scheduling."
Articles and Publications
Household Workers Law: Bill of rights sets forth wage and hour obligations of employers (Oct 2011)
Doing the Right Thing by Paying the Nanny Tax (NY Times, Jan 2009)
New York State Department of Taxation and Finance's Publication #27: "What You Need to Know if You Hire Household Help"
Department of Labor's "Labor Rights and Protections for Domestic Workers in New York"
IRS Publication 926: Household Employer's Tax Guide
Senator Liz Krueger's Guide to Employing a Nanny and Other Full- Time Domestic Workers
New York State Department of Taxation and Finance's Publication NYS-50, "Employer’s Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax"
Frequently Asked Questions
What does it mean to pay a nanny "on the books"?
Paying on the books means that you, as an employer, document your nanny's wages, pay in federal and state withholding (if your nanny requests it), social security, Medicare and other amounts via regular estimated payments/withholdings. It is illegal to fail to properly document wages and pay taxes on income paid to a nanny.
Do I need to pay my nanny on the books?
If you pay your nanny more than $2000 in a calendar year you are legally obligated to pay your Nanny on the books. Generally, the federal employment taxes are added to your personal tax return (annually) while the state taxes are remitted quarterly.
What happens if my nanny says they don't want to be paid on the books?
It's up to you to decide you are not paying on the books, not your nanny. The employer (you) are responsible for the fines associated with not paying on the books as well as back taxes, penalties, overtime pay and other expenses—after the fact. Not all nannies may be aware of the short- and long-term benefits of paying on the books, such as Social Security benefits, earned income credits, unemployment, and Medicaid. If you have the best nanny candidate in the whole wide world, you should do what's best for both you and them: pay them on the books.
Is my nanny an independent contractor who I can pay with a 1099?
Nope, no matter how you try to make an argument for this one, they are a household employee, not an independent contractor. You'll fill out a W-2, NOT a 1099.
If my Nanny is undocumented can I still pay them on the books?
Without a social security number or ITIN number your nanny does not have the proper documentation to work legally in the United States, but you CAN pay them on the books. However, it's more difficult. If they're trying to get citizenship it can help their case if you pay them taxes. If you decide NOT to pay on the books since your nanny is undocumented, you are still required by law (via the Wage Theft Prevention Act) to give them notification of their pay. Also, they are still entitled to at least the minimum wage and time and a half for all hours worked over 40 in a workweek (as designated by the Domestic Workers Bill of Rights - DWBR).
Can I hire my nanny by paying them a weekly salary?
You may AGREE to a weekly salary but you need to record it as hourly pay. Legally, however, they are NOT a salaried employee that you can pay the same weekly rate for 35 hours one week and 45 hours the next week. You and your nanny may agree on an average but the law doesn't see it that way. Plus, if they work for more than 40 hours you'll need to document it as a regular and overtime rate. Here's the formula for figuring out the hourly rate with an agreed upon weekly salary: Hourly rate = Weekly Total Income/ (40+(1.5*(total hours-40))).
What am I responsible for withholding from each paycheck?
- The employee's Social Security taxes (6.2% of gross wages)
- The employee's Medicare taxes (1.45% of gross wages)
- Federal and state income tax withholding (if requested)
(NOTE: You are not required to withhold federal income tax from wages you pay a household worker. However, it can be done if the employee requests it and you agree to withhold it. If you do not withhold, you should explain to your nanny that they will owe taxes at tax time (if necessary). In any case, if the Nanny has children they may be eligible for the Earned Income Credit (EIC) and will receive a refund on their federal income taxes.)
- Disability and workers' comp is required if the domestic employee works 40 or more hours per week.
What am I responsible for paying annually?
- Social Security & Medicare taxes representing a total 15.3% of wages consisting of 12.4% Social Security (6.2% withheld from your employee’s paycheck plus the employer's matching 6.2%) and 2.9% Medicare (1.45% withheld from your employee plus the employer's matching 1.45%). NOTE: Traditionally, the employee portion is deducted from the agreed wages, reducing the employee's tax home pay, but some employers may decide to pay all these taxes for their employee).
- Federal Unemployment Tax (FUTA) (approximately 6% - for 2016 - of the first $7,000 of cash wages )
- State Unemployment Tax (SUTA) (an initial rate of 4.1% of the first $10,500 of wages).
How much more will I pay if I pay on the books vs. off the books?
That depends on a large number of factors, but people who pay on the books pay about 11% more than those who pay off the books (plus ancillary costs if you use a service). Many nannies want to get the same take-home pay as if they were working off the books, but it is up to you to decide whether you want or need to "pay up" or "gross up." Also—since you are paying things like unemployment you save money when you terminate employment (NYC will pay the nanny unemployment). Finally, you'll also be eligible for both tax credit and possibly flex spending credits through your company to offset the extra money compared to paying off the books.
What are some things to discuss with your nanny?
Over the years we've heard from parents paying on the books that their nannies had a difficult time understanding how getting paid on the books affects their pay. If you tell a nanny that they will make $15/hour and want to pay them on the books, you'll need to decide (and explain) whether it is take home pay (which means you as an employer are paying about $18.25/hr) or before taxes (where the nanny will take home $12.35/hour). Also, some employers pay both the employer taxes and the nanny's share of taxes, so a nanny may have that expectation. Some nannies get a figure in their mind (e.g., $15/hr for 40 hours) and expect to take home that amount (e.g., $600). This gets tricky if your nanny works more than 40 hours/week because over 40 hours is 1.5 the base rate.
How does it work if I have a nanny share?
If you are in a nanny share and want to pay your nanny on the books you will both have to be registered with NYS as an employer and each family will need to do reporting, issue pay stubs, etc. This means you have twice the administrative expenses. You can also form an LLC with both families (which is more complicated).
Setup
FEDERAL:
- OBTAIN AN FEDERAL EMPLOYEE IDENTIFICATION NUMBER (EIN) so that you can engage in an employer/employee relationship. To do this, fill out form SS-4 with the IRS. An FAQ about EINs is HERE. You can apply:
Online Form SS-4, Phone (800-829-4933), available immediately, Via Fax (859-669-5760), available in 4 days
- VERIFY NANNY'S WORK ELIGIBILITY. Fill out an I-9 form to document your employee’s eligibility to work. This requires that you see official documents insuring that the Nanny is allowed to work (e.g., passports, birth certificates, social security cards, etc.). (Keep a copy of all of these).
OTE: Your employee may have been able to obtain an Individual Tax Identification Number (ITIN) by filling out a Form W-7. Even if presented with this in place of a Social Security Number, you are still required to fulfill the requirements of Form I-9.
- HAVE NANNY FILL OUT W-4 (specifying the number of allowances). You can obtain the W-4 form online from the IRS. There is a withholding calculator here.) You may want to discuss with your Nanny that if they do not have income taxes withheld they are likely to owe significant taxes when they file.
NEW YORK STATE:
- NYS-- REGISTER WITH NEW YORK STATE AS AN EMPLOYER. Obtain a New York State (NYS) Withholding Identification Number and Unemployment Insurance Registration Number (based on your Federal EIN). Consult New York State's Publication #27 ("What You Need to Know If You Hire Domestic Help") for detailed instructions.
Online, Form NYS-100
Phone (888-899-8810)
Fax (518-485-8010)
- ARRANGE DISABILITY, NYS PAID FAMILY LEAVE, AND WORKER'S COMPENSATION. If your domestic employee works 40+ hours a week you are required to acquire both disability and workers compensation insurance. These two forms of insurance will help protect you against accidents and will cover your Nanny if they are unable to work. You are required to have them in place before your Nanny starts. Your household policy may cover some of this.
As of January 1, 2022, domestic workers who are hired directly by a private homeowner and who work 20 or more hours a week for the private homeowner are required to be covered for Paid Family Leave, and are eligible once they have been in employment for 26 consecutive weeks.
- NYS- NOTIFY THE NYS DEPARTMENT OF TAXATION AND FINANCE OF THE NEW EMPLOYEE- to be filed within 20 days of your nanny's first day of work (See FAQ here)
You'll need the following information:
- Employee name
- Employee address
- Employee Social Security Number
- Employer name
- Employer address
- Employer Identification Number
- Whether dependent health benefits are available to newly hired employees (effective July 15th, 2011).
NOTE: You can also send a copy of the W-4 to NYS Dept. of Finance, New Hire Notification, P.O. Box 15119, Albany, 12212-5119. Or Fax to 518-320-1080.
- NOTIFY YOUR EMPLOYEE OF THEIR WAGES (effective April 9, 2011) as required by the Wage Theft Prevention Act (see FAQ). This is a law to notify workers of their pay rates. You are required to notify them and you must keep signed copies on file for 6 years but are not required to file this paperwork. You are required to do this annually (and in the Nanny's primary language) and it must contain:
- The employee’s rate(s) of pay;
- The basis of the employee’s rate(s) of pay (e.g. by the hour, shift, day, week, salary, piece, commission, or other);
- Whether the employer intends to claim allowances as part of the minimum wage, including tip, meal, or lodging allowances, and the amount of those allowances;
- The employee’s regular pay day designated by the employer in accordance with the frequency of pay requirements in the Labor Law1;
- The name of the employer and any "doing business as" names used by the employer;
- The physical address of the employer's main office or principal place of business, and a mailing address if different;
- The telephone number of the employer;
- Any such other information as the commissioner deems material and necessary.
To make it easy, You can obtain Sample Forms in different languages through the NYS Department of Labor. Information on the hourly rate employee pay notice is here. NOTE: as of December 2014 penalties for not providing written documentation have increased. Make sure to provide this information in writing, even if not part of a whole written agreement. You do NOT need to provide yearly updates as long as the information has not changed.
Ongoing
IMPORTANT: Keep a record of ALL payments to your Nanny (whether check or cash) as well as the number of hours worked. whether you pay on or off the books, if you are asked to prove how long they worked it will be your word against theirs. As one parent pointed out "the IRS intends for 'cash wages' to include payment by check, money order, etc, but I think 'cash wages' is very unclear - people may think that they don't owe the tax if they pay by check."
NEW YORK STATE:
- NYS INCOME TAX (QUARTERLY): You can withhold states income tax only at your Nanny's request. They need to fill out Form IT-2104 (which you can find here). (NOTE: You need to report these withholdings quarterly using form NYS-45; Form NYS-1 if you without more than $700 per quarter). You'll mail these to NYS Employment Taxes, P.O. Box 4119, Binghamton, NY 13902-4112).
- NYS UNEMPLOYMENT INSURANCE TAX (SUTA) (QUARTERLY) (required if you pay your Nanny $500 or more, although voluntary at any amount under $500). Paid QUARTERLY (Q1:4-30, Q2: 7-31, Q3: 10-31, Q4: 1-31) using FORM NYS-45 (and you can file online). You only pay unemployment taxes on the first $8500 you pay your Nanny. Your rate is determined by the NYS Department of Labor and will be sent to you. (It's based on amount of time you've been subjected to unemployment insurance law, timeliness of your quarterly taxes and promptness of taxes as well as the balance in the State Insurance Trust Fund. Base pay rate in 2011 was 4.1% or about $350) So Pay ON Time! The NYS DOL has a site that helps you with Unemployment Insurance here. Make sure to close your account if you no longer hire a Nanny. This can be done through the Department of Labor's Liability and Determination Section (212.266.5325). You'll need to fill out an IA-15 form New York State Department of Labor Change of Business Information Form for the Unemployment Insurance Program.
- DISABILITY AND WORKERS COMP INSURANCE (ANNUALLY) The State of New York requires you to purchase Disability and Worker's Compensation for employees who work 40 hours or more a week. Your insurance provider may already include this, but check! It allows your Nanny to get Unemployment if they get hurt, and protects you from liability for injuries on the job. Disability costs around $80.00 per year and workers compensation costs between $400-$600/year.
Note: Penalties for failing to report appropriate wages, worker's compensation, disability insurance, and taxes to the NYS Department of Labor and the IRS can run you in the tens of thousands, not counting failed overtime payments to your Nanny. Do it right the first time and avoid all of these worries!
IN HOUSE (You don't file this with any agency but must have proof upon request that it's been done)
- ANNUAL WAGE NOTIFICATION (effective April 9, 2011)as required by the Wage Theft Prevention Act (see FAQ). This is a new law to notify workers of their pay rates. You are required to do this annually (and in the nanny's primary language) and it must contain:
- The employee’s rate(s) of pay;
- The basis of the employee’s rate(s) of pay (e.g. by the hour, shift, day, week, salary, piece, commission, or other);
Whether the employer intends to claim allowances as part of the minimum wage, including tip, meal, or lodging allowances, and the amount of those allowances; - The employee’s regular pay day designated by the employer in accordance with the frequency of pay requirements in the Labor Law;
- The name of the employer and any "doing business as" names used by the employer;
- The physical address of the employer's main office or principal place of business, and a mailing address if different;
- The telephone number of the employer;
- Any “such other information as the commissioner deems material and necessary.”
FEDERAL:
- SOCIAL SECURITY, MEDICARE and UNEMPLOYMENT TAXES (Federal Unemployment Tax (FUTA) and New York State Unemployment Insurance (SUTA): You make Federal income tax and Social Security, Medicare and Unemployment tax payments annually on Schedule H of your federal tax return. (NOTE: income tax withholding is voluntary, Social Security and Medicare is mandatory.)
- Social Security Taxes (shared responsibility): Employer- 6.2%, Employee-6.2% of wages paid. (The employee's share is withheld from their wages.)
- Medicare Taxes: Employer-1.45% and Employee-1.45% (The employee's share is withheld from their wages)
- Unemployment Tax applies to the first $7,000 you pay your Nanny (after subtracting exempt payments) The tax rate is currently approximately .08% and payments go to: IRS, P.O. Box 804521, Cincinnati, OH, 45280-4521. The unemployment taxes to pay include Federal Unemployment Tax (FUTA) in addition to the New York State Unemployment Insurance (SUTA) described above.
(NOTE: Some employers pay their Nanny's share of these taxes so that the amount of take home pay isn't as low. If you do this you will fill out the W-2 without holdings for your employee.)
- FEDERAL WITHHOLDING is also paid on the Schedule H. You can withhold federal income tax only with the employees W-4 request. For further information, please consult the IRS’s Employer Tax Guide.
- FORM W-2 and FORM W-3: Four copies of the W-2 must be given to your employee and a machine readable copy must be filed with the SSA, along with a W-3. (NOTE: these are example forms. To order official IRS forms, call 1-800-TAX-FORM (1-800-829-3676) or Order Information Returns and Employer Returns Online, and they will mail you the scannable forms.) You can file these electronically but you must be registered through their online business services.
BEFORE MARCH: FILE FORM W-2 AND W-3 to the Social Security Administration.
BY APRIL 15TH: FILE SCHEDULE H WITH YOUR FEDERAL INCOME TAX RETURN (Form 1040). The amounts on Schedule H for Medicare and Social Security Taxes depend on whether you pay the both employee's and employer's share of taxes.
Assistance with Filing
While many complain of the tediousness of the regulations, there are now many resources available that will assist you in paying your household employee "on the books." You can do all the paperwork on this yourself, but there is quite a bit, and the IRS is not too charitable about missed deadlines. ("They treat you just the same as if you're IBM," one mom said.) .
NANNY TAX PREPARATION COMPANIES:
Several firms specialize in nothing but domestic worker tax law and have received good support from Park Slope Parents members (HERE). These services will probably run you $700 or so annually. Your accountant can advise you on what is best for you.
Checklist for Paying Nanny Taxes
Per Paycheck, withheld
- Social Security Tax and Medicare
- Federal and State Unemployment Tax (Federal Unemployment Tax (FUTA) and New York State Unemployment Insurance (SUTA))
Quarterly
- NYS Unemployment and withholding via NYS 45
Annually
- Complete Annual Pay notice and have employee sign. Keep for 6 years.
- Pay workers' compensation premium if worked for 40 or more hours per week (separate policy)
- Pay disability premium (separate policy)
- Schedule H (due with 1040 annually)
- W-2 copies to Nanny
- W-2 to SSA (must be machine-readable)
- W-3 to SSA (must be machine-readable)
Dividing up Taxes Between Nanny and Employer
Question from a PSP member, May 2023:
"My family is in the process of interviewing nannies, and we intend to pay on the books. We met one candidate we connected with immediately and are hoping to make her an offer. At our interview, she told us that she expects that we would pay both shares of taxes, ours and hers. I know this is fairly common. I'd like to hear from parents who are in or have been in this situation: did this go well for you? Did any parents successfully negotiate to have the nanny pay her share of taxes? Do any nannies agree to pay taxes on their own, or is that essentially not done?"
Info from PSP: (NOTE: These responses have not been checked for accuracy against the laws around on the books tax expectations)
Here is some insight from the 2022 Nanny Pay Survey that talks about paying on the books and the arrangement people make with their nanny.
The bottom line is that there are a variety of options people choose, and that it’s best to work collectively. We have heard that people (nannies and employers) can get confused about all the deductions and responsibilities, so making sure that everyone is comfortable is really important.
How do you handle the taxes the NANNY is required to pay (i.e., NOT the taxes you pay as the employer)? (Please check ALL that apply)
36% (77): We do NOT offset (i.e., gross up/pay an additional amount to cover the taxes the nanny pays) any of our nanny's share of payroll taxes.
33% (70): We pay ALL of the nanny's portion of the taxes.
25% (54): We pay the nanny more money so that the "take home pay" is higher and more in line with what other nannies are making.
16% (35): We set the GROSS pay level based on the number of deductions filed on the nanny's W4 and the amount of NET pay we discussed that would be take home (e.g., this may include gross up/pay an additional amount to cover the taxes paid).
10% (21): We pay some, but not all, of our nanny's share of payroll taxes in addition to the taxes we pay as employers.
2% (5): We pay the nanny as an independent contractor (1099 employee), so we do not deal with the nanny's taxes. (NOTE: this is not the legal way to pay a regular domestic employer)
Total Respondents: 214
Member insights:
"Our nanny pays her share of payroll taxes. I’ve heard of the employer paying both but don’t think it’s done by everyone by any means. Good luck!"
~~~
"In the last 8 years, we’ve employed 3 nannies on the books. Their share of taxes has always come out of their pay and we have been responsible for the employer’s share of taxes. I was very clear upfront about that and helped them use online calculators to figure out what their take home pay would look like, assuming a certain number of hours. Nanny #1 didn’t love it but agreed, and Nannies 2 and 3 had no issues. It was important to me that the arrangement be completely legal and fair. That meant 1.5 times pay for any hours over 40 in a given week, more than the legal minimum for paid time off, and we always had a 'guaranteed' number of hours each week so the nanny had some certainty of minimum level of income week to week. What I found is that our nannies have sometimes had a perception of what’s common but when I’ve polled parents and reviewed the park slope nanny survey there seems to be a lot of variety in practice. Good luck!"
~~~
"We cover payroll taxes for our nanny (in addition to paying our employer portion). I would not agree to pay someone's income tax liability, but we did run some scenarios to see what her likely take home would be (emphasis on likely, no guarantees) in order to generate the hourly rate we thought might net her an amount, post-tax, that was competitive with nannies working off the books. So that does entail additional payment on our part baked into her hourly rate. Everything in the contract was in gross, pre-tax amount and we spelled out who was responsible for which taxes.
~~~
"We offer a gross pre-tax rate just as my own employer offers me a gross pre-tax rate. We have never negotiated a net rate. The payroll service deducts the nanny's share of income and payroll taxes from the nanny's pay and we (the employer) pay the employer portion of taxes. I think that the gross rate that we pay is slightly higher than the median cash rate but the net "take-home" rate for our nannies is definitely lower than the average cash rate. The nannies we employed who were closer to retirement age understood that they were paying the employee share of a benefit that they would receive in retirement.
I always made sure to lay out the payment practice at the start of the interviews and I only continued the conversation with candidates who were interested in an employment relationship that followed all applicable tax laws. In general, I only reached out to candidates on PSP who were listed as willing to work on the books.
~~~
"Hi! We have had two nannies and in both cases paid on the books and paid our nanny’s share of employment taxes. Our nanny was responsible for her own income taxes. At the end of the day paying the employee’s share of employment taxes is just more comp to the employee (although an incrementally better tax result as others have mentioned due to not having to “gross up” for employment taxes) so I would think of it and explain it in those terms.
I spoke with many, many candidates over the course of two nanny searches and a significant majority were willing to work on the books. There are only a small percentage that cannot work on the books due to immigration or other reasons. Usually it is just an economic issue (even things like loss of benefits are ultimately economic). Some candidates I spoke to strongly preferred to work on the books.
I would not try to match 1 for 1 after-tax pay to someone working off the books. To start there are a range of variables in determining market pay, including things like overtime, guaranteed hours, paid leave, etc. There are also soft benefits to working on the books, including future social security benefits, wage history for things like housing and loan applications, and just wanting to be in compliance with the tax laws. In many cases income taxes are not significant. That said, we always paid on the upper end of the survey ranges, paid time and half for hours over 40, guaranteed payment for a certain number of hours every week that included guaranteed overtime, and were generous/flexible about vacation time, sick time, etc."
Last updated October 2023
Disclaimer: This post has been written for educational purposes only by Park Slope Parents and is not meant to be legal advice and should not be construed as legal advice or be relied upon. The post may contain errors, inaccuracies and/or omissions. We recommend checking with a professional for specific advice.
