Do-it-yourself guides for hiring a nanny, paperwork, and the nanny tax

Hire and Pay a Nanny Yourself

Hiring and paying for a nanny is a big hassle with a lot of paperwork. That is why many parents are willing to spend the money for professional help: (1) nanny agencies for finding and hiring the right nanny, and (2) payroll services for payment and tax help.

Combined, this can easily cost you thousands of dollars. If you don't have this money to spend, or are just not willing to, you are on your own in a crazy jungle of processes and regulations.

We were in the same situation, and it really bothered us that new parents are left so alone. We decided to create this site with step-by-step, easy-to-understand instructions for hiring and paying a nanny.

We hope the information on these pages is helpful to you! Happy parenting!

Nanny Paperwork Guide Free Nanny Payroll Speadsheet Hire a Nanny Guide Nanny Tax Calculator Nanny Tax Resources
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Our ultimate guide to hiring a nanny shows you how to find and hire a great nanny. The guide starts with a look at child care options and ends with the nanny contract.

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Our guide to nanny paperwork and nanny taxes explains the paperwork you will have to deal with to legally employ a nanny. This guide shows you how we create pay stubs for our nannies for free.

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Check out our easy calculators to get an estimate of how much money you will have to spend to employ a nanny.

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Consult our resources page. It has example spreadsheets we used for our nannies. It also contains many links to official documents from the IRS and state agencies.

What We Did

Here is a summary of the steps we took to find a nanny for our baby:

  • Consider the pros and cons of different childcare options: (1) daycare center, (2) stay at home dad/mom and help from family, (3) nanny, (4) nanny share, (5) home daycare.
  • Estimate the cost of different child care options.
  • Start the search process. If your decision is to go ahead with a nanny, look at sites such as Care.com or craigslist.org and research the profiles of several nannies in your area. Also consider email lists at work or elsewhere to get recommendations for nannies. Talk to the people you know and get recommendations.
  • Some sites, such as Care.com list the hourly rate a nanny expects to be paid. Put this into our nanny cost calculator to refine your estimate of the cost for hiring a nanny.
  • Decide how to hire the nanny. The options are either a nanny agency or the do-it-yourself way.
  • If you want to do it the do-it-yourself way, contact candidates. Search for a nannies using Web Sites, email lists or personal network.
  • Prepare for and conduct the interview process. Especially prepare for the negotiation of the hourly rate and a discussion about how car and gas costs are covered. Think about your own and you nanny's vacations and how to handle compensation during these periods. Talking about this early will remove a lot of conflict later.
  • After interviewing and narrowing your selection, consider doing a background check.
  • Ask for references during the interview process and call them up. Our opinion is not to trust written references too much. Talking to a reference on the phone is so much more valuable. Personally, we also find it worthwhile to check the Internet if there are any red flags about a person.
  • Set up a contract that you and your nanny will sign.
  • Extend an offer to a nanny and wait for the acceptance of your offer. Repeat steps if necessary.

And here is a summary of everything related to paperwork, payroll and taxes:

  • Decide how you want to pay the nanny. The main options are payroll services or do-it-yourself. We decided to go with the do-it-yourself way. A payroll service is more expensive, but can save you a lot of money.
  • Prepare an Excel sheet for payroll processing. This will be updated each pay period. A printout for the current pay period together with a check will be given to the nanny on the last day of each pay period.
  • Set up an Excel sheet for tracking the amount of hours a nanny works each day. Print it and ask your nanny to fill in the amount of hours worked every day before she leaves. After some time, using a more relaxed way to track hours is ok.
  • Get an Employer Identification Number.
  • Find out online whether state unemployment insurance must be paid for the nanny. In Washington State (the state we reside in) this is a requirement. If your state requires paying state taxes, this typically requires several additional steps (note that these will be different on a state by state basis):
    • Get a state business license,
    • Report the nanny within a set time period to the state, and
    • File employment/tax reports as well as pay state taxes every quarter to a state Web site.
  • On the day the nanny starts working (or better: earlier), fill out an I-9 form and keep it for your records. This will give you, among other things, the nanny's social security number, which will be needed at several places later in the process.
  • On the day the nanny starts working (or better: earlier), ask the nanny to fill out a W-4 form. You don't have to withhold federal income tax for a nanny, but you can if you want.
  • Pay quarterly estimated taxes to the IRS in order to avoid a tax penalty at year end.
  • After the end of a year, create a W-3 and W-2 form. Give the W-2 form to your nanny. This is required so that she or he can prepare their income taxes.
  • Pay the employer part of the payroll taxes with your yearly tax declaration.
  • Ask you employer if he/she offers a flexible spending account (FSA) to help you pay for childcare costs from pre-tax money. Make use of the offer and fund the account. This typically also requires filing statements to your employer for getting the money from the FSA.