If you paid a babysitter, nanny, or housekeeper more than $1,700 last year, you could be responsible for footing the tax bill.
It turns out most families don’t know about the Nanny Tax—and often the ones who do don’t pay it. Does yours?
According to the best estimates, anywhere from 80-95 percent of people who have regular home care providers like babysitters, nannies, and housekeepers don’t pay the taxes they owe. The number of people who paid the nanny tax has dropped by more than 25% over the past 15 years, even though the number of nannies has risen since then. A quick read through of the comments on news stories show most families either don’t know about the tax, don’t pay it, or both.
Yes, it’s the middle of tax season (fun times, right?). When you gather your W-2’s, receipts, interest statements, and donation reports, you should also pull together documentation of what you’ve paid your babysitter, nanny, or care provider because you might owe “The Nanny Tax.”
The Nanny Tax is actually made up of three different federal employment taxes that employers have to pay: Social Security tax, Medicare tax, and federal unemployment tax. For most families, it adds up to a little over 16% of what you paid your babysitter or nanny for the year.It’s important to stay compliant with IRS regulation and federal tax laws. There are many stories of people who didn’t pay the Nanny Tax one year and got into trouble later on: Zoë Baird, a Clinton nominee for attorney general, had to withdraw her name from consideration; last year, Caroline Kennedy withdrew from the U.S. Senate race; Timothy Geither ran into trouble for not paying the nanny tax during his nomination for Treasury secretary.
Even if you’re not running for public office like those above, it’s still important for “regular people” like us to stay compliant on their taxes. There are many people who have had less-public confrontations with the reality of the Nanny Tax and faced paying thousands in tax bills and fines. It’s easy to see how a seemingly small issue like the Nanny Tax (and leaving it off of your tax return) can grow into a big problem later on.
Did you pay your Nanny Tax this year? Why or why not?
Important note: if you have any financial or tax-related questions, contact your accountant or a tax professional. All content in this article is for informative purposes only and Care.com is not responsible for any actions you choose to take with your own taxes or personal finances. Thank you.