5 Ways Nanny Taxes Work for You


by guy maddalone, Founder & CEO, GTM Payroll Services

Nannies hold jobs like any other professional and should be paid legally to gain important protections and advantages. You will need to pay taxes, but the benefits will far outweigh the small amount taken out of your paycheck.

  1. You have a verifiable income. If you apply for a car loan, student loan, mortgage, or even a credit card, you’ll need to show that you can pay monthly installments. Being paid legally provides that. If your pay is not documented, you have no way to show that you have income.
  2. You have a legal employment history. Getting paid “on the books” creates a work history. This is also important when applying for a loan, credit, or your next job.
  3. You can receive unemployment benefits. Employers are required to pay an unemployment insurance tax. When paying legally, your Nanny Familywill do the same. If you lose your job, through no fault of your own, unemployment benefits will partially replace your lost wages for up to six weeks while you look for a new job.
  4. You can enjoy Social Security and Medicare benefits. You and your employer will pay Social Security and Medicare taxes. This money is set aside to help pay for living and medical expenses when you retire. If you are paid “under the table,” even though it is illegal for household employees to be paid in this way, you don’t receive these benefits and may need to continue working past retirement age.
  5. You may be eligible for a health care subsidy. The Affordable Care Act requires everyone to have health insurance or they will have to pay a fine. A health insurance marketplace has also been created to help people find coverage. If you buy a policy through this marketplace, you could qualify for a subsidy and cut the costs of your insurance… provided, of course, you are being paid legally.

Understanding How Taxes Affect Your Pay An important distinction for nannies to understand is gross vs. net pay. Gross pay is your compensation before taxes. Net pay is your pay after taxes. Before negotiating an hourly rate, know how much you need to “take home” (your net pay). From there, you can “gross up” your request. For example, Sara lives and works in New York and needs a net pay of $600 a week. She can use a nanny tax calculator to insert her net pay and calculate her weekly gross pay, which will be $783.

Weekly Gross Pay                            $783

Federal Income Tax                         $90.36

State Income Tax                              $32.37

Social Security                                   $48.55

Medicare                                             $11.35

Total Taxes                                         $182.63

Sara’s Net (Take Home) Pay         $600.37

Apart from being the legal way to receive compensation as a nanny, paying your taxes has many benefits and offers protection for your future that you won’t be able to receive should you choose to look the other way and be paid “off the books.” We here at Nanny Magazine, as well as the author of this piece encourage and support legal and fair compensation for nannies everywhere.