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

Disclaimer: The information on this site documents our personal experience and the tools we used on our parenting journey. We are not lawyers, financial advisors, or tax experts. The content provided here is for informational purposes only and should not be taken as professional advice. If you have legal, financial, or tax questions, please contact a qualified professional. Read our full disclaimer.

Happy parenting!

Everything You Need to Know

Comprehensive guides to make hiring and paying a nanny simple

Nanny hiring guide

Hiring Guide

Find and hire a great nanny. From childcare options to contracts and background checks.

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Nanny paperwork guide

Paperwork & Taxes

Navigate the tax paperwork. W-2s, I-9s, and state requirements made simple.

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Nanny cost calculator

Cost Calculator

Estimate your total costs including taxes, Social Security, and state requirements.

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Nanny resources

Resources

Free templates, official forms, and links to IRS and state agencies.

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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.
  • Check market rates. 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 options are either a nanny agency or the do-it-yourself way.
  • Contact candidates. 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.
  • Interview. 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.
  • Background check. After interviewing and narrowing your selection, consider doing a background check.
  • Check references. 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.
  • Sign a contract. 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 to pay. 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 payroll. 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.
  • Track hours. 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 EIN (Employer Identification Number).
  • Check state requirements. 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.
  • Verify employment eligibility. 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.
  • Handle withholding. 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 estimated taxes quarterly to the IRS in order to avoid a tax penalty at year end.
  • File W-2s. 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 employer taxes. Pay the employer part of the payroll taxes with your yearly tax declaration.
  • Use an FSA. 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.

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