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Is a nanny bonus reported as wages?

I gave our nanny a $2000 holiday bonus. Do I have to report the nanny bonus as wages, and will there be a tax on bonus payments?

A nanny bonus payment IS considered taxable wages. “Wages” are defined by the IRS as all remuneration paid, including the cash value of all remuneration paid in any medium other than cash and gratuities received by any employee from the employer in the course of employment. Amounts an employer pays as a signing bonus in connection with the establishment of an employer-employee relationship and an amount paid to employee for cancellation of an employment contract are wages

The following items are treated as wages (taxable compensation) to the employee:

  • Her regular payroll, whether paid by check, direct deposit or cash.
  • If you pay HER part of Social Security/Medicare these amounts are wages. (See Pub 926 p. 5 Cash Wages 2nd paragraph.)
  • If you pay her Federal, state, and/or local income taxes, these amounts are wages.
  • Any bonuses, whether paid by check, direct deposit or cash.
  • Airplane tickets for holidays, except when she is traveling and working with YOU.
  • Any items that have cash value, including gift certificates, gift cards, payments for her automobile repairs, maintenance, payments for her medical bills and co-payments (except items like a flu shot that you require as a condition of employment).

Items that may be excluded from “wages” (nanny non-taxable compensation) are:

  • Employer reimbursement of health insurance premiums, so long as the reimbursement does not exceed statutory limits.
  • A cell phone when required for nanny | parent communications regarding scheduling and similar usage. (Reference)
  • Employee travel allowance, including employer paid public transportation or parking fees, is subject to amounts allowed by the current Internal Revenue Code.
  • Values for room and board for household employees when such room and board are provided for the benefit of the employer and as a condition of employment. (p. 5)
  • Reimbursed “business expenses” – mileage for driving your children, parking fees and tolls for same, reimbursement for a grocery run or money she paid for a school event subject to IRS limits and documentation requirements.
  • Items of “de minimus” value, usually defined as less than $100. Examples might be cab fare home when she has worked late, or a meal when she is out with your family