Taxes for Nanny-Shares

Nanny Tax Dilemma: Nanny-Share Arrangements

A nanny-share is defined as two families sharing the expense of employing a nanny to care for their children as a group. The nanny and children may alternate between the two family homes, but care is provided to the children of both families as one job for the nanny. The nanny has two employers, each paying their agreed-upon share of her compensation.

If two families hire the same nanny to care for their children, but the care is provided separately, this is not a nanny-share arrangement. In this case, the nanny has two part-time jobs.

Each family is required to establish themselves as a household employer with the IRS and the state. The families should pay the nanny separately and withhold and remit payroll taxes appropriately to the IRS and to state agencies on their portion of her salary.

Although it may seem administratively easier to have one family handle tax withholdings and remittance on the full salary, this creates risk for the family who is not registered as a household employer with the IRS and the state tax agencies. In addition, there is risk for the family who pays the nanny in full and then has to collect from the second family.

Tax Breaks Available When Both Families Pay Legally

Tax breaks are available when tax accounts are established with the IRS and the state to prove the nanny is paid legally. When each family is established as a household employer and is properly handling employer tax obligations on their portion of the nanny-share, they are entitled to a tax break of up to $2,500 per year.

Most families in a nanny-share realize tax savings that far exceed their employer tax costs, so they actually come out ahead financially. For more information about tax breaks, see Dependent Care Tax Breaks or visit our Employer Budget Calculator for an estimate of your savings.

Tom Breedlove is a Partner at Breedlove & Associates, the nation’s leading specialist in payroll, tax, and HR services for household employers.

Comments

  1. What if only one family wants to pay your taxes and the other doesn't? I had that happen and I favored the family that paid me under the table since I was taking home more. If it happened today I would prefer paying taxes (for unemployment and disability insurance) but it's hard when working for two families at same time.

  2. Nanny share arrangements typically end when a child begins full time school or a new baby is born. Plan for the transitions, and discuss appropriate notice. A family that leaves the share without notice leaves both the nanny and the other family in a bind nanny compensation is clearly impacted. Thanks a lot.

  3. According to Nannyshare(uk's leading nannyshare provider), you can try using a Nannytax – they act as an agent and do everything for you, from setting up a PAYE scheme and calculating the correct tax and National Insurance payments, to making sure your nanny's payslips are accurate. All you have to do is actually pay the nanny HMRC. It's as simple as that.

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