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DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 793
Experience:  Years of Experience in Business & Personal Taxes
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we have a nanny that we currently pay cash. what is the right

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we have a nanny that we currently pay cash. what is the right way to compensate her in the eyes of the IRS?
Welcome and thanks for your question!

If you pay your nanny more than $1,800 a year, then your nanny is considered a household employee in the eyes of the IRS. You are required to withhold Social Security and Medicare taxes from a household employees paychecks (currently 7.65%). You will be required to file a Schedule H with your 1040 individual tax return to report the wages you paid, taxes withheld, and also employer taxes that you may be required to pay (generally federal unemployment and FICA taxes). You would need to give her a W-2 each year for the wages you pay her. You will also be required to pay state unemployment taxes on the wages that are paid to the nanny. You can register with the Minnesota Department of Employment and Economic Development at

Neither Minnesota or the IRS requires you to withhold federal and state income taxes from a household employee's paycheck, but you may choose to do so if your nanny requests it and you agree. In that case, you will need her to complete a Form W-4 and W-4MN so you know how much to withhold. Minnesota requires you to complete an additional registration in order to submit employment taxes to them. You can apply online at

To substantiate the payments made to the nanny, you should pay her using a check, money order, or other type of payment that has a paper trail.

You may also wish to consult the IRS Household Employer Guide or the Minnesota Household Employee Fact Sheet for further information. Please let me know if I can provide additional information or clarification on any of the above. Thanks and have a wonderful night.
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