Filing taxes can feel tricky and overwhelming, especially if you do not know what you need to report. It may be a surprise to learn that nannies are on the list of household employees you must report. Nannies are considered household employees, but what does that mean? Our guide will explain the definition of a household employee and how to create w2 for nanny employees.
Who is a Household Employee?
The Internal Revenue Service succinctly details who is a household employee and how employment taxes apply to them. When filing your taxes, you will classify housekeepers, babysitters, and maids as household employees. Anyone who works in or around your residence as an employee qualifies for that title. However, it does not apply to any hired independent contractors. These would include repairmen, plumbers, or similar business contractors. A household worker is someone who you control the way they do their job.
What is the “Nanny Tax”?
The nanny tax is both federal and state tax requirements. When you create w2 for nanny, make sure to review the tax requirements listed in IRS Publication 926. Families must manage the tax requirements when they hire any household employee. These include taxes withheld from the employee. These are Social Security and Medicare taxes (FICA). It also includes federal and state income taxes. The other type of tax is what the employer pays. The taxes include Social Security and Medicare taxes, along with federal and state unemployment insurance.
Nanny taxes become relevant once your family pays a household employee $2,300 or more in a calendar year. It is also applicable if your family pays $1,000 or more for unemployment insurance taxes in a calendar quarter. Make sure to take note of where you live and specific state obligations. If you live in a certain state, you may not be required to pay income taxes. Alternatively, other states may require that you withhold additional taxes from your employee.
Steps to Create W2 for Nanny
It is easier than ever to generate Form W-2 for your nanny. The Social Security Administration offers online tools to employers. Make sure that you complete your filing before Jan. 31, 2022 for the 2021 tax year.
First, collect your employee’s completed Form I-9. You will use the form to reference their SSN and home address. Then, access the online tool for generating Form W-2. Next, register or log into Business Services Online. You can follow a guide on reporting wages to the SSA. After, you can create Form W-2. Once you complete the form, download it and give it to your nanny for the employee’s tax return.
Another useful tool is our software at Advanced Micro Solutions. Our nanny payroll software provides form generation, filing, and support for a relatively low rate. One of the features of our Software Generated Forms is that you can print forms onto blank paper. The software is efficient and intuitive for when you need to create w2 for nanny.