Firstly, it’s important to understand that the vast majority of professional nannies are considered employees and not independent contractors. According to the IRS guidelines, employers are responsible for withholding and remitting taxes for their employees. In the case of nannies, federal, state, and FICA taxes are applicable.
Secondly, when a nanny gets hired, IRS guidelines dictate that they fill out a Form W-4 so that the proper withholding amounts can be determined. The amount of tax that is withheld depends upon the allowances claimed on the W-4. The more allowances claimed, the less tax is withheld. Still, this is something that should really be discussed with a licensed tax practitioner.
Thirdly, employers typically provide their employees with a Form W-2 by January 31st of each year. This form shows all the taxes that were withheld and paid on behalf of the employee for the prior year. Nannies use this form to help complete their Form 1040, otherwise known as the “personal tax return.”
Lastly, it’s important to realize that the agency that placed the nanny with the family is generally not considered the employer. The most typical arrangement is that the nanny is directly employed by the family. As a result, a nanny should look to the family to provide them with the relevant W-4 and W-2 forms.