The use of nannies has become hugely popular in the United States for obvious reasons. As families grow, working parents may be less able to juggle the responsibilities of work and running their households. The IRS reports that there are approximately 12,000 au pairs in the US at any one time. Au pair wages form part of the household employment tax category. We take a look at some of the tax considerations for paying and reporting taxes for household employees.
Payroll tax reporting requirements for nannies and household employees
Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee. Au pairs and nannies are typically given a private bedroom and meals as part of their household employment benefits. They are also expected to receive a full weekend, two weeks of paid vacation, and up to $500 toward attending an institution of higher education, in addition to their cash stipend tied to the U.S. minimum wage. Au pairs are not allowed to work for more than 10 hours a day or 45 hours per week.
While having an au pair might not make you feel entirely like an employer, the government likely considers you as such. Here’s what you need to do to get started and to make sure you’re following the law. This means that you can take the following steps to ensure compliance with payroll regulations.
- Get an employer identification number (EIN) from the IRS to ensure fair and equitable treatment for all taxpayers.
- Get your au pair to apply for a U.S. Social Security number.
- Register an Unemployment Insurance Account Number for your au pair to pay unemployment compensation to the IRS for them.
- Complete Form I-9 to ensure the au pair is authorized to be remunerated in the United States.
- Ensure your nanny completes Form W-4 to indicate their tax situation.
Tax reporting requirements for nannies
As an employer of a household employee, you must also report their wages and taxes withheld to the IRS and state tax agencies. To do this you would be required to use Schedule H (Form 1040) to report household employment taxes if you paid cash wages to a household employee and the wages were subject to social security, Medicare, or FUTA taxes, or if you withheld federal income tax. You would also be required to file Form 941 to report income taxes, Social Security tax, or Medicare tax withheld from employees’ paychecks.
These are some of the tax considerations the IRS cites for employers of nannies or household staff:
1. Income tax withholding
Au pair wages are includible in the gross income of the recipients, and au pairs are required to file U.S. individual income tax returns.
2. Social security and Medicare taxes
If your au pair has previously been in the United States or is a resident alien during their employment in your household, they might be subject to social security and Medicare taxes if their annual au pair wages exceed the applicable dollar threshold.
3. Federal unemployment taxes (FUTA)
A host family may be liable to pay federal unemployment tax if the au pair’s wages exceeded a certain threshold. This certain dollar threshold amount and the annual maximum amount of wages are subject to FUTA tax. This would also be reported on Schedule H of Form 1040.
4. Income tax filing of au pairs
Most au pairs are nonresident aliens, and therefore will be required to file Form 1040-NR to report their au pair wages
It is best practice for employers to keep accurate financial records that showcase and justifies all payments made to household staffers.
Failure to make the necessary submissions could result in noncompliance penalties with the IRS. Contact a Fusion tax expert as soon as possible, if you need help. Our team can provide you with guidance on Form 1040 and the necessary steps to follow if you employ an au pair.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.