What is Nanny Tax?

The nanny tax, also known as a babysitter tax, refers to a certain tax law that requires people who employ childcare workers in their homes to pay taxes for that service, and is very similar to the babysitter tax. Such tax laws exist in many countries, including the US, the UK, and Canada, and these complicated laws can be a significant hassle for parents who employ home workers. Theoretically, a nanny or babysitter doesn’t have to be employed full-time in order for parents to be responsible for paying some forms of nanny taxes. Instead, payment may be necessary depending on how much the babysitter is paid over the course of a year; if the nanny is paid more than a set amount of money decided upon by the government, then the tax must be paid. The tax may be paid in full by the employer, or split evenly between the employee and employer if such a situation is agreed upon beforehand.

In most countries where the nanny tax exists, the taxes paid are like those any other employers would pay to the government when they have an employee. Most of the time, large employers remove taxes from their employees’ paychecks when they pay them. Once common problem many individuals have with the nanny tax is forgetting to deduct it from employees' wages, so employers may end up paying the taxes out of their own pockets at the end of the year. Often, tax payers who hire nannies will turn to a tax agency or an accountant to ensure that the correct amount of tax is paid at the right time.

Given the complexity of nanny tax laws, those considering employing nannies, or using babysitters on a regular basis, should find out which tax laws apply in their country. Each country has its own reporting requirements and exemptions. Good places to start research on any applicable tax laws include websites for government tax agencies. For example, in many European countries citizens hiring a regular nanny must register as an employer and pay the required tax rate on their employee either monthly or every three months. In places like the US, taxes include payments for state tax, federal unemployment tax, federal payroll taxes, and payments to social security. Figuring out the exact amount to pay each tax agency can be challenging and parents must make sure they have a person’s social security information for accurate reporting.

Countries may each have their own rules about nanny tax exemptions, but some similarities may be found between nations. In general, the tax is not required to be paid if a babysitter is under the age of 18 and is not solely employed as a childcare worker, as is the case with most under the age of 18 — they are considered to be primarily students. If the nanny is a parent, spouse, or child of the employer the tax is usually exempt. When a babysitter is hired through a babysitting agency, the agency is considered to be the employer and is therefore required to pay taxes on the babysitter. In most cases, nannies are not considered to be independent contractors or self-employed because they do not meet the typical requirements for such cases — usually they work in the employer's home and do not decide the specifics of their duties, making them employees.