A common question that we receive is can a nanny be paid through an individual’s business. It may make sense intellectually that your nanny allows you to work, and it would certainly be easier to pay a nanny as part of the business, but in most cases the IRS says this is not allowed.
The IRS does not view nannies, or other household employees, as direct contributors to the business and says nannies should be treated as a personal employee, not your company’s employee. Businesses can receive a tax break on payroll costs and other expenses because employees directly contribute to the business’s success. Similarly, the IRS has business tax forms for employers to report their employee earnings and taxes. The IRS does not view a nanny, or other household employee, as a direct contributor to the business and has established unique tax credits for household employers and tax filing protocols that are unique from businesses.
There are other instances where keeping the business and household segregated make sense for both practical and administrative reasons. A household and business may not want unemployment claims affecting their respective unemployment rates. Similarly, worker’s compensation policies and claims should not be co-mingled. There may also be strict requirements by health insurance providers and other benefits administrators about only covering business employees.
The only exceptions where household employees should be included in the employer’s business payroll and tax returns are when the employer’s business entity is a sole proprietor or if the home is on a farm operated for profit.
Household payroll taxes are complex and require expert handling to ensure you are in compliance with the unique requirements that exist for domestic employers. Contact NannyChex at 877-626-6924 for more information.