How do we handle nanny share payroll taxes with another family?
When you share a nanny with another family, both families become employers. Presuming that you each pay the nanny for the work performed for your individual family, each employer is responsible for withholding nanny share payroll taxes and the periodic remittances of payroll taxes. Nanny share payroll taxes can be confusing, especially if you are withholding the nanny’s income taxes. A HomeWork Solutions’ household payroll specialist will be happy to discuss your situation with you and explain how to do payroll for a nanny share.
Occasionally the non-host family (the family that does not have the nanny working in their home) will try to rationalize treating the nanny as an independent contractor. Our advice? Don’t do it!
We consulted with Bob King, Esq., of Legally Nanny on the employment relationship between the nanny and the non-host family and he advises:
In most cases, both families are the nanny’s employer. The reason is that both families financially contribute to the nanny’s compensation, thus the economic reality is such that they are both typically considered employers.
Additionally, both families normally exercise a significant degree of control over how the nanny performs her duties. Even the family that sends their child to the other family’s house still has significant influence over how their child is cared for, what he or she is fed, activities, etc. This substantial level of control generally further indicates an employer/employee relationship.
Video: Nanny Share Payroll Taxes
HomeWork Solutions would like to point out another ‘relationship’ issue that is created when Family A issues a W-2 and Family B issues a 1099. In this circumstance, let us assume the weekly wage is $800, split evenly between the families. Family A will withhold 7.65% (see note) in Social Security and Medicare, netting the nanny $369.40 weekly. Family B will pay the nanny the complete $400, yet when she does her tax return, she will owe ‘self employment tax’ of 15.3%, which is essentially the employee share of Social Security and Medicare and the employer’s share. So after taxes, she is netting $338.80. The only ‘winner’ in this scenario is Family B – Family A is paying their employment taxes while Family B skips, and nanny is actually earning more from Family A than Family B. The financial relationship in a nanny share is very important, and this inequity could cause the share to fall apart.
Other Nanny Share Issues
Liability, insurance, where to host if nanny cares for both family’s children together, coordinating vacation, dealing with sick children, dietary and discipline preferences, and notice for leaving the share should all be researched, discussed, and agreed to at the start of the relationship.
Nanny share arrangements are described in this Nanny Share Infographic.
Legally Nanny offers a variety of legal services to nanny employers. They can assist the family to draft employment, confidentiality and severance agreements, as well as defend and resolve disputes, investigations, audits, wage claims, administrative charges and litigation stemming from household employment situations.