A Different Nanny Tax

December 11, 2008

Actress Fran Drescher, formerly star of “The Nanny,” has issued a press release asking that she be considered for New York’s soon-to-be-vacant seat in the U.S. Senate. She of the gravelly voice touts her work increasing awareness of women’s health issues.

We did a bit of research, but alas were unable to come up with insights on Drescher’s tax policy views. A few years ago, though, Ryan Ellis wrote up a post on his blog highlighting tax obligations for hiring nannies. These obligations, which have tripped up many a politician, are outlined in IRS Publication 926:

You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.

If only the worker can control how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

If you pay a household employee (who is not your spouse, under-21 child, or parent) more than $1,600 in a year, you must withhold and pay Social Security and Medicare taxes. In many cases, the payment can be done at tax time using Schedule H. You also must obtain an employer ID number and file a W-2. If you pay a household employee more than $1,000 in any calendar quarter, you must withhold federal unemployment tax. You may also need to pay state taxes.

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