A recurring question to our client support staff concerns whether a family can treat their nanny (or other household staff) as an independent contractor, provide the nanny a 1099 Form instead of a W-2, and avoid the entire issue of payroll taxes.
If you answer YES to all of the following questions, the nanny or household worker IS your employee:
- The household worker provided services in your private home -or- another private home as part of an arrangement for nanny share payroll taxes.
- You directly paid the household worker $2,300 or more for services in the year (2021).
- The household worker is 18 years or older.
A household employee must be provided a Form W-2 – only true independent contractors are provided a 1099 form. There is no nanny independent contractor – you always have the right to control her work.
To qualify as an independent contractor, the worker must show factors that indicate true independence, such as being able to determine when (days or time) and where work is performed, to work for others and provide their own equipment. An example of a household independent contractor is a gardener who comes to the home as needed or on a flexible schedule, bringing his own lawn equipment. Additionally, an independent contractor is free to bring their own helpers, or to have some or all of the work done by others, without consultation with the household.
Improperly treating a household worker or any worker as an independent contractor for tax and insurance purposes is a practice known as “Employee Misclassification” and the US Department of Labor, the IRS and 33 states are working together to crack down on this illegal practice. Wage and hour complaints and unemployment claims are two common actions that brings misclassification to the attention of authorities.
Video: Employee or Independent Contractor?
Nannies, housekeepers and elder care givers privately paid directly by the family are almost always employees of the families they work for. Common law (not the tax code -or- your written work agreement) makes the determination of when an employer/employee relationship exists. Under common law, a worker who performs services for you is your employee if you can control the work schedule, what will be done and how it will be done. It does not matter whether you give your nanny or caregiver 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 IRS articulates strict guidelines that differentiate employees and independent contractors to further eliminate confusion (Refer to IRS Publication 926). Nannies, elder care givers, maids, housekeepers and other domestics are generally considered employees. You are generally obligated for all payroll tax filings and remittances if you pay the worker $2,300 or more in the calendar year (2021).
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 care giver whom they do not pay directly – they pay an agency for example – and the referring agency establishes the scope of work, the care giver’s pay rate, the agency pays the care giver, and even determines which care giver to send, the family/organization will generally not be considered the employer of the agency supplied personnel and the family/organization will not have payroll tax obligations. 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.
However, if you pay the agency and the agency is not paying the payroll taxes, the family/organization takes on considerable risk. How? 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 you pay 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 OR the agency and family/organization jointly will be deemed to be 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 insure 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 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).
Other helpful information:
- Understanding Employee vs. Contractor Designation
- US Department of Labor Employee Information Center
- Misclassification Enforcement Steps Up
- Blog: A Nanny Given a 1099 Fights Back
- IRS Publication 15 Employer’s Tax Guide (Begin page 6)
- IRS Publication SS-8 Determination of Worker Status
- Sample Completed SS-8
- National Private Duty Association Position Paper