You may not think of yourself as an employer just because you have someone drop by the house to watch your kids, but the Internal Revenue Service sees things differently. Many parents are taken by surprise by the “nanny tax,” which requires parents to pay FICA and FUTA taxes.
If you’re a parent who uses a nanny, you’ll probably want to take a look at this Bargaineering post before you file your taxes. Those who paid their nannies more than $1,700 last year are expected to pay nanny taxes to the IRS. You’ll need to issue the nanny a W-2 and claim an Employer Identification Number (PDF).
If the person you exploit for caretaker responsibilities happens to be your parent, older child or an age 17-and-under babysitter who doesn’t babysit as her primary occupation, you should be in the clear.
Do You Owe the Nanny Tax? [Bargaineering]