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 determines worker classification 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, and if you control financial aspects of the relationship, 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.
If you answer YES to all of the following questions, the nanny or household worker IS your employee (not an independent contractor):
- The household worker provided services in your private home -or- another private home as part of an arrangement for nanny share
- You directly paid the household worker $2,300 or more for services in the year (2021).
- The household worker is 18 years or older.
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.
Exceptions to classifying employees vs independent contractors
Possible Exceptions Families, as well as organizations such as childcare centers and religious organizations, often utilize an agency as a childcare worker staffing agency to fill temporary vacancies, provide newborn care services, or for special events. If the family/organization engages a nanny or other caregiver whom they do not pay directly – they pay an agency for example – and the referring agency establishes the scope of work, determines which caregiver to send, sets the caregiver’s pay rate and, pays the caregiver, the family/organization will generally not be considered the employer. In these instances the supplying agency is the employer. Please note that agency -supplied childcare or senior care workers to organizations are not considered “household” employees and the annual household employment exempt wage threshold described above does not apply.
Keep in mind that if you pay the agency and the agency is not paying the payroll taxes, you may take on considerable risk. Should the employee file a complaint, you may be deemed a CO-EMPLOYER and as such be responsible for taxes. It is very important that you clearly establish, before engaging the agency, that they are the employer. – Look for it in writing. Additional risks when the referring agency is not paying the payroll taxes include a workplace accident, an unemployment claim or a worker dispute for unpaid wages or overtime. In these events, the agency AND/OR the family/organization may be deemed the employer and the state and federal government will happily collect all unpaid taxes, along with penalties or interest.
If you are a family/organization utilizing the staffing services of a nanny agency, DO ensure that the agency has properly classified the workers as employees and that payroll taxes and workers compensation insurance are being addressed by the agency. It is recommended that this be addressed in your contract with the staffing agency.
Certain licensed professionals such as physical therapists, occupational therapists and speech therapists who come to your home to provide specialized professional services for you or your dependent will generally be treated as independent contractors and carry their own insurance and pay their own taxes. You are also NOT required to pay employment taxes on the monies paid to the following individuals for childcare or domestic services:
- Your spouse
- Your child under the age of 21
- Your parent UNLESS the parent provides care for your child 17 or younger or an adult household member who has a physical or mental condition that requires personal care AND your are a) divorced and not remarried or b) a widow or widower or c)you are living with your spouse whose physical or mental condition prevents him/her from caring for your child(ren).
- Any person aged 17 or younger who is a student.
You are also not required to pay Social Security and Medicare taxes for a household worker if the total cash wages paid does not reach the annual wage threshold, currently $2,300 per year (2021).