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When Christine Annechino and her husband, Jay Rosen, of Manhattan needed to hire a nanny five years ago, they didn’t think twice about whether to make it legal. “We want our jobs to be above board, so how could we expect less for our nanny?” says Annechino, mom to five-year-old Gidget. Their sitter happened to feel the same way, though in fact quite a number of nannies prefer not to be paid on the books—for a variety of reasons ranging from wanting a bigger take-home check to having questionable immigration status. And many parents, who are stretched just trying to pay for a nanny in the first place, are fine with that: In an online poll taken earlier this year, 70 percent of responding Time Out Kids readers said they paid under the table. But you shouldn’t take the easy way out. Simply put: “When a nanny says ‘Pay me off the books,’ she’s asking you to commit tax evasion,” says Guy Maddalone, author of How to Hire a Nanny and CEO of GTM Payroll Services. Luckily, it’s not as hard to put a nanny on the books as you might think.
1Negotiate your nanny’s wage. When you do so, make sure she understands you’re talking about her gross pay. “That’s one of the biggest problems,” says Maddalone. “A family tells the nanny she’ll be paid $1,000 a week, and the nanny thinks that’s after taxes.” Clarify up front that you want an on-the-books employee; if she’s not willing to comply, look elsewhere.
2Register as an employer. Now that your family has an employee, you’ll need to claim employer status. Log on to Irs.gov to download an SS-4 form and apply for your federal Employer Identification Number (EIN). Once you have your EIN, you’ll also need to register with the New York State Department of Labor and report that you’ve got a new hire. You can do so by logging on to its website (labor.state.ny.us). Just as you fill out I-9 and W-4 forms when you start a new job, your nanny will need to do the same. Find them at Irs.gov.
3Be insured. If your nanny works in your home 40 hours a week or more, you’ll need to obtain disability insurance and worker’s compensation insurance. You can purchase both types of policies through the New York State Insurance Fund (nysif.com). Disability costs about $60 per year, and worker’s comp is about $450—a small fee to pay for protection. “If your nanny gets hurt in your home and you don’t have insurance, the hospital will bill you,” says Maddalone.
4Start the withholding process. You’ll need to withhold Social Security and Medicare taxes and federal, state and local taxes from your nanny’s check each week. The Tax Calculator on GTM’s website (secure.gtmassociates.com/calculator.asp) can easily figure these amounts for you. Employers are required to pay Social Security and Medicare taxes at a rate of 15.3 percent, which can be split with their employee. So if you are paying your nanny $400 per week, your share of the taxes would be $50.20.
5Prepare for tax time. Keep detailed records of what you pay your nanny. (You’ll also need to give her a statement with each check detailing the taxes withheld.) At the end of the year, you’ll give her a W-2 form, and you’ll fill out W-3 and Schedule H forms. If you still find the process overwhelming, companies like the Nanny Tax Company (nannytaxprep.com), HomeWork Solutions (4nannytaxes.com) or GTM will do it all for you for about $400–$500 a year.
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