The Nanny Tax for Family Caregivers

If you hire a nanny or elder caregiver to care for your child or aging parent, you probably already know that the law generally considers this person your employee and you will need to withhold and pay the “Nanny Tax” for this person, which more specifically is social security and Medicare employment taxes. Caregivers are typically employees of the individuals for whom they provide services because they work in the homes of the family and the family has the right to tell the caregivers what needs to be done.

Caring for Family Members

But what if these services are provided by a family member? If the caregiver employee is a family member, special rules apply and the employer may or may not owe employment taxes even though the employer needs to report the family member’s compensation on a Form W-2. If your employee is your spouse, parent, or child (or a non-related student under age 18), you should read Publication 926, the IRS’s Household Employer’s Tax Guide, for more information. Even if your family caregiver is not considered your employee, the caregiver must still report the compensation as income on his or her Form 1040, and may be required to pay self-employment tax depending on the facts and circumstances.

For more information about household employment issues, or to learn how our NannyPay software has been providing families with an economical tool to comply with their household employment obligations since 1997, visit our website at www.nannypay.com, or contact us at sales@nannypay.com.