Is my nanny an independent contractor? Can I give my nanny or senior caregiver a 1099 and let her file her own taxes?
Most Workers are Employees!
The US Department of Labor’s Administrator of the Wage and Hour Division, David Weil, clearly stated on July 15, 2015 that most workers are considered employees under the Fair Labor Standards Act, as he issued new guidelines aimed at limiting the misclassification of workers as independent contractors.
Many people are confused by the distinction between employees and independent contractors. This distinction is important because employers of household employees file and pay employment taxes. Independent contractors handle their own tax filings. The IRS makes this distinction primarily based on who controls the work being performed. If you have the right to control or define the work to be done and how the work will be done, according to the IRS you are an employer.
The simple answer is a nanny is NOT an independent contractor. A nanny, housekeeper, or home health aide that you hire directly is your employee under common law. It does not matter how many hours they work, whether the position is permanent or temporary, or how much you pay the worker.
Your nanny and all household employees must be provided a Form W-2 every year for wage and tax reporting, and household employers must make payments to the Internal Revenue Service for Social Security and Medicare taxes, as well as the Federal Unemployment Tax (FUTA). It is improper to issue a Form 1099 to a nanny who earned $2,300 or more (2021) in the year. Prosecution for willful misclassification of employees as contractors is an enforcement priority of the US Department of Labor, and the Internal Revenue Service has entered into information sharing agreements with more than 30 states to facilitate enforcement.
Video: Employee or Independent Contractor?
Note: The wage threshold has been updated to $2,300 for 2021
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Under common law, a worker who performs services for you is your employee if you can control what will be done and how it will be done. It does not matter whether you give your nanny great latitude, but rather that you have the right to control the work. It does not matter if the work is performed on a full time or part time basis. It does not matter whether the worker lives with you or not. It does not matter if he/she is paid hourly, daily or a salary. It does not matter how the employee refers to herself or how you refer to him/her in an employment contract. The household worker is your employee and you are generally obligated for all payroll tax filings and remittances.
The IRS articulates strict guidelines that differentiate employees and independent contractors to further eliminate confusion. Nannies and other domestics are generally considered employees (Refer to IRS Publication 926: Household Employers Tax Guide). Remember, how the employee refers to herself or how you refer to her in an employment contract is immaterial. You are obligated for all payroll tax filings and remittances if you pay the worker $2,300 or more in the calendar year (2021). The IRS has no statute of limitations when auditing and collecting nanny payroll taxes if you file false/fraudulent returns.