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Nanny Tax Reporting: How a CPA Can Help

Posted by HomeWork Solutions on 2/16/16 7:00 AM
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PNG_20141106_Toolkit_CTAs_Blog_CPAIf you are a CPA at this time of year, you are hoping and praying that your clients with nannies have their documents in order. Your fingers are crossed that your clients have tracked their nanny’s hours worked, paychecks paid, and all with their Social Security and Medicare taxes withheld. You really hope they have already done their quarterly unemployment tax filings and issued their nanny's W-2. Unfortunately, the odds are not in your favor. Most nanny employers either are not fully aware of the responsibilities of household employment or lack the time to handle these obligations, which leads to hours and hours of extra work on the part of you, their CPA.

Proper Classification

With the rise of the 'gig economy' and new delivery models for in home care - whether it is a nanny or a senior caregiver - many of your clients are not even romotely aware that the nanny or senior caregiver they hired through online venues is actually their employee. The US Department of Labor's David Weil clearly stated "Most workers are employees" when speaking about enforcement efforts this summer. Providing a W-2 and complying with state and federal unemployment taxes, as well as proper FLSA compliant minimum wage and overtime treatment of workers is a Federal and state enforcement priority.

Back Taxes and Future Compliance


Even if it’s too late for your clients this year, it doesn’t hurt to encourage them to make some belated new year’s resolutions to save the family time and money next year. The mess of paperwork and the expense of past-due tax filings caused by improperly handling household employment is entirely preventable. By implementing a written work agreement at the start of employment, families can outline the nanny’s payment in detail. Take care to include the following details in the work agreement:

  • Hourly Pay: As non-exempt employees under the Fair Labor Standards Act, employers are required to pay nannies and other household employees for every hour worked (fixed salaries are actually illegal).
  • Overtime: Under the same law, nannies and other household employees are entitled to overtime pay for time worked in excess of forty hours per work week. The overtime pay rate must be at least 1.5 times the regular hourly rate. 
  • Time off: This category includes everything from sick days to vacation days. Federal law does not require employers to offer paid time off to household employees; however, Washington, D.C., New York, San Francisco and some other municipalities have their own requirements. New York State, California, Hawaii and Massachusetts (effective 4/1/15) also mandate paid time off in their Domestic Worker Bill of Rights legislation. A policy for sick days should be established in the work agreement.
  • Tax withholding policy: When discussing the work agreement with a new household employee, it’s best practice to articulate the role of tax withholdings in an employee’s paycheck. Working through the math together can prevent the risk of pricey misunderstandings.

Does your client lack the time or expertise to fulfill the nanny tax reporting obligations on his or her own? Home Work Solutions Household Payroll services can do the work for them, and next year your client can simply turn in a completed Schedule H with their client organizer. There is even time for the CPA to send their client to HWS to file past-due household employment taxes for 2015, so you can concentrate on their overall tax situation. Their problem is solved, and you are free to concentrate on more high-value activities. Call 1-888-NaniTax for a free consultation or learn more about our nanny payroll services online!

Topics: household employee taxes

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