If you’ve hired a nanny, you’re responsible for handling their payroll and taxes correctly—and that includes issuing a W-2 at the end of the year. But a W-2 isn’t just a form you fill out in January; it’s the final step in a yearlong process of paying your nanny legally.
Before you create a W-2, you need to ensure that you've followed all the necessary payroll and tax compliance steps. If you're feeling overwhelmed, don't worry—we'll break it down and show you how HomeWork Solutions can handle it all for you.
The Steps to Legal Nanny Payroll
Creating a W-2 for your nanny means you’ve properly tracked wages and taxes throughout the year. Here’s what that process looks like:
Obtain an Employer Identification Number (EIN) and State Tax Accounts
The IRS requires household employers to have an Employer Identification Number (EIN) to report wages and taxes.
In addition to a federal EIN, states require you to register for state tax accounts to report and pay state income taxes withheld and unemployment insurance contributions. Each state has different Labor and tax law requirements, so it’s important to check with your state’s tax and labor agencies.
Set Up Tax Withholding
Nannies are employees, not independent contractors, which means payroll taxes apply to their wages. These include:
- Social Security & Medicare (FICA) – The nanny and employer split these taxes. Each pays 7.65% of the nanny’s gross wages (6.2% for Social Security and 1.45% for Medicare), for a total of 15.3%.
- Federal & State Unemployment Taxes (FUTA & SUTA) – These are paid solely by the employer to help fund unemployment benefits. These are generally paid quarterly to federal and state agencies.
- Federal, State, and Local Income Taxes – Income tax withholding is optional but recommended. If you and your nanny agree to withhold federal, state, and local income taxes from their paycheck, you’ll remit those payments on their behalf when you remit your employer taxes.
⚠️ Important: If income taxes are not withheld from paychecks, your nanny is still responsible for paying them independently. They may need to make quarterly estimated tax payments or settle the amount owed when filing their annual tax return.
Pay Your Nanny Legally
You should pay your nanny via check, direct deposit, or a payroll service. Keeping proper records ensures your nanny gets the benefits they’re entitled to and keeps you compliant with applicable laws. Many states also require payroll documents such as pay stubs by law.
File and Pay Taxes Quarterly
Most household employers must submit withheld taxes to the IRS and state agencies at least once per quarter. Missing deadlines can result in penalties, so it’s important to stay on schedule.
Issue Form W-2 in January
At the end of the year, you must provide your nanny with Form W-2, which details their wages and taxes paid. You’ll also need to send this information to the Social Security Administration (SSA) and state tax agencies.
Don’t forget you will also need to account for employer taxes on your annual filing via a Schedule H. Taking credit for payments you made throughout the year on your return as well.
Avoid the Year-End Catch-Up Game
If you haven’t been handling payroll correctly all year, creating a W-2 for your nanny can feel like an impossible task. Many household employers scramble in January, trying to right the ship by track down pay stubs, calculate and remitting taxes they should have been paying all year. The process is complicated, and mistakes can be costly.
Instead of trying to play catch-up alone, let HomeWork Solutions take care of everything for you. We handle payroll, taxes, and compliance from start to finish—including a W-2 for your nanny, and yearend tax documents for you, without stress or surprises.
We Make Nanny Payroll Easy
With over 30 years of experience, HomeWork Solutions specializes in household payroll and tax compliance. Whether you're starting fresh or need help correcting past mistakes, we’ll ensure your nanny is paid legally, your taxes are handled properly, and your year-end forms are ready on time.
Ready to catch up on past wage filings and establish a Hassle-Free Payroll Solution?