By GTM Payroll Services
One of the most common questions (and misunderstandings) surrounding household employment is whether a family can provide their nanny a 1099 at tax time and consider them an independent contractor rather than a household employee.
The short answer is “no.” You work in the family’s home and take direction from them including the schedule of hours. You can’t get a 1099 and you should be provided with a W-2 as an in-home babysitter or nanny. Here’s why and answers to other questions you may have.
Form 1099 vs. W-2 for Nannies and Household Employees
Form 1099 is used to report certain types of miscellaneous (Form 1099-MISC) or non-employee (Form 1099-NEC) compensation.
Non-employee compensation generally includes independent contractors, freelancers, sole proprietors, and self-employed individuals.
These forms generally report payments made “in the course of your business” and not your personal payments. Wages paid to a nanny are not considered business-related so Form-1099 does not apply to household employment.
Is a nanny an independent contractor or self-employed?
Independent contractors are hired to perform a service. However, you do not have control over how the job is done or when and the worker uses their own tools, supplies, and equipment.
For example, a small business owner may enlist a graphic designer to create a new logo for their company. The owner may give details on how they want the logo to look and colors to incorporate as well as a deadline for the work to be completed. But the graphic designer controls the creative process, uses their own software programs to work on the logo, and works on the project at times they determine.
That graphic designer could be classified by that small business owner as an independent contractor.
However, the IRS considers nannies to be employees of the family and not independent contractors.
In general, the family controls how your work is done, setting your schedule, and providing the tools and supplies to do your job. That makes you an employee and not an independent contractor.
The family is instructing you how they would like their child looked after (feeding times, nap times, discipline, screen time, etc.). You also work according to a schedule they determine, and you will use their kitchen and utensils to prepare meals and their stroller to take the child out for walks.
You are not going to care for their child in a way that is against their desires. You are also not going to show up at their home when you are not needed to work. And while you may bring some of your own activities to engage their child, you are mainly relying on their supplies to do your job.
What are the tax consequences of regarding a nanny as an independent contractor?
By treating a nanny, or any other household employee, as an independent contractor, families shift the entire tax burden to the worker and eliminate most of the paperwork and responsibilities that come with being an employer. In an employee-employer relationship, Social Security and Medicare tax obligations (commonly called FICA taxes) are split evenly. Independent contractors, however, pay both the employee and employer shares of FICA taxes.
What is employee misclassification?
Treating a nanny or babysitter as an independent contractor and not an employee is considered employee misclassification. The IRS deems this tax evasion as the family is skipping their employer tax responsibility and leaving the entire obligation to the nanny to pay.
I received a 1099 instead of a W-2. Now what?
As mentioned, the family is committing tax evasion if they give you a 1099. Get caught and they will owe back taxes, interest, and additional fines, which can easily run into thousands of dollars.
Your state tax agency will likely find out as well, as the IRS, U.S. Department of Labor, and state tax agencies have partnered to share information between agencies to help reduce worker misclassification and facilitate enforcement of the law.
Also, the IRS has no statute of limitations when auditing false or fraudulent returns, which would include employee misclassification, and collecting back taxes.
What forms should you receive?
You must be provided with Form W-2 if you:
- Were paid $2,600 or more in 2023, or;
- Had federal taxes withheld regardless of your wages
Form W-2 must be provided to you by January 31. A copy of Form W-2 and Form W-3 are submitted to the Social Security Administration by that same date.
Are there benefits to being treated as an employee?
Yes! You are covered by workers’ compensation insurance if you get hurt or sick while on the job. You also receive unemployment benefits if you lose your job through no fault of your own, are usually covered by state-mandated paid sick and family leave, and other domestic worker protections. These benefits typically do not apply to independent contractors.
What if you provide services in your own home?
If a family brings their child to your home, you are not a household employee. You would be considered self-employed and doing business as a sole proprietor. You would not receive a W-2 or a 1099 from the family. They would pay you as they would any other service. Paying by check or electronically – rather than cash – would be best so there is a record of payments.
You would be responsible for reporting your income on your own tax return.
What if you are in a nanny share?
In a nanny share – where multiple families hire one caregiver to care for all children out of one of the family’s homes – you are considered an employee of each family. You will receive a paycheck from each family on payday and a W-2 from each family at the end of the year.
If you’re a nanny that knows a family that could use GTM’s nanny tax and payroll service, send them our way. If they sign up with us, you’ll get a $75 Amazon gift card! Just fill out this form.
Visit us at GTM.com/household, or call (800) 929-9213 to learn more about our nanny payroll and tax services.
