Your nanny spends all day with your child. So chances are your nanny feels more like family than your employee. And you likely want the best for your family.  Providing your nanny, or other domestic employee, with proof of income and paying taxes on that income helps to:

• Increase your employee’s credit score
• Make your employee more likely to qualify for purchases requiring credit
• Document income that can be used to rent an apartment or purchase a car
• Protect you from the risk of an audit

Long after your domestic employee is no longer working for you, the proof of income and taxes that you’ve paid for your employee will:

-Provide stability for your employee during potential unemployment

-Give your employee access to Social Security and Medicare during retirement

-Ensure better credit and a better overall financial future for your employee

A 2014 article in The Atlantic discussed the impact of evading the nanny tax and paying household employees “under the table.” These issues are still very relevant in 2016.

• When you hire a nanny, or other domestic servant, you become a household employer with an employee?
• You must verify your employee’s ability to work?
• You must report the hiring of your employee in the state’s New Hire Reporting system?
• Once you become a household employer you must register with the state and Social Security Administration?
• You may be required to have workers compensation insurance for your nanny, or other employee?
• You may be required to have disability insurance for your nanny, or other employee?
• You may be required to pay state and federal unemployment tax for your employee and the rates and the amount of wages on which the tax is calculated vary by state?
• You may receive a credit against your federal unemployment tax liability for unemployment taxes paid to the state?
• You must withhold and pay Social Security and Medicare taxes on behalf of your employee?
• You must issue pay stubs or a statement showing wages and deductions to your employee for each pay period?
• Your nanny, or other employee, must be paid in regular intervals set by the labor laws of the state?
• You must issue your nanny a W-2 at the end of the year and provide a copy to the Social Security Administration?
• There may be rules in your state regarding paying your employee via direct deposit?
• Did you know that Nanny Tax Solutions can help you with all of these potential requirements and more?