If a household employee, such as a nanny, is being compensated for his or her work, nanny taxes should be paid. Failing to do so could lead to thousands of dollars in fees and even jail time. In addition, the nanny is denied a credit history, paystubs, and social security and unemployment benefits. Families of nannies should get a federal and state EIN, check the nanny’s eligibility to work in the United States, file a new hire report and submit for an unemployment number, have the nanny complete a Federal W-4 form and state income tax withholding form, set up a payroll and documentation process and, finally, file taxes.
