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What about payroll taxes? Newborn Care Specialists & Temporary Nannies

Many newborn care specialists (NCS) and nannies work a series of short term assignments throughout the year. These can range from several days to several months, and this may be something that you’re used to doing on a regular basis. These types of situations can leave the NCS or nanny and their employer confused about how wages should be paid from a payroll and tax perspective. Here, we discuss some of the facts about how your short term newborn care position affects how you pay your taxes. One underlying detail here is that the taxes are based on the wages paid, not hours worked or duties performed.

Situation #1

If you’re an NCS or nanny earning more than $2,700 from the family, see below:

Fact #1

The family is your employer. Employer and employee are each responsible for Social Security and Medicare taxes of 7.65% (15.3% total). The employer may choose to withhold your portion from your paycheck or pay it on your behalf. The employer is also responsible for state and federal unemployment taxes (about 4% on average).

Fact #2

You as the NCS or nanny are responsible for all income taxes on your gross wages. Your employer may withhold these taxes from your paycheck throughout the engagement. However, if they do not, you will need to budget for this and pay when filing your personal taxes.

Fact #3

Your employer must provide you with a W-2 in January of each year. This is the employer’s responsibility, but it never hurts to remind them.

Situation #2

If you’re an NCS and the family contracts with a business (that may be owned by you as a sole proprietor or by others), see below:

Fact #1

When the family contracts with a business for your services, the business is responsible for employment taxes. In determining employment status the IRS looks at the totality of the relationship, not just the piece of paper or business card. The default assumption is that individuals are employees until proven otherwise. If you are your own business you will be doing things like setting fees, carrying personal liability insurance, maintaining a website, retaining the right to send alternate personnel to perform the work and providing your contract to the family. If those things don’t apply to you, you likely fit into Situation #1 or #3.

Fact #2

The family is responsible for paying the business per their service agreement.

Fact #3

The business is responsible for paying both portions of Social Security and Medicare Tax (15.3% total). If you own the business, this is commonly referred to as the Self Employment Tax.

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Situation #3

If you’re an NCS or nanny earning less than $2,700 from a family, see below:

Fact #1

Neither you nor the family are required to pay social security or Medicare taxes.  The family may be responsible for unemployment taxes on the wages you were paid.

Fact #2

You are responsible for all income taxes on your wages. The IRS instructs the temporary NCS to include all wage income – with or without a W-2 – on Line 1, Wages, Salaries and Tips on the annual income tax return.

Note: Do not report this as Schedule C self-employment income.

Remember: In almost all situations, you will need to provide your social security number to your employer, no matter how short or long your job duration is.  If you are unsure of how to calculate your income taxes or have additional questions on wages and taxes and how your temporary nanny positions are affected, contact your CPA or personal tax preparer and they can help.

HomeWork Solutions’ professionals are here to help. Call us at 800.626.4829 and a household payroll specialist will be happy to chat with you.