Why your nanny or babysitter is legally a W2 employee,

not a 1099 independent contractor and why it’s

important to know the difference.  

While many people think of babysitters as individuals or 1099 independent contractors, the IRS and the Department of Labor classify them as household employees. There are a few basic differences between 1099 independent contractors and W2 employees that are important to know so you can make educated decisions now to avoid trouble in the future.  If you are found to have misclassified employees as independent contractors, you may be required to pay all of the taxes and benefits owed for the entire time worked, plus penalties. 

 

What are the differences, and why does it matter? 

A 1099 Independent Contractor 

  • Sets their own schedule 

  • Determines how and when they do their job 

  • Supplies tools and equipment 

  • Has more than one client 

  • Accepts jobs case by case and can turn down jobs 

  • Accepts jobs for a defined length of time 

  • Level of oversight is low 

A W2 Employee           

  • Has assigned hours and a set schedule 

  • Trained by company and expected to uphold company values 

  • Completes work how and when employer requires 

  • Employer provides tools necessary to complete job 

  • Has one employer     

  • Hired for an undetermined length of time  

  • Level of oversight is high 

Families hiring full or part time babysitters or a nanny in the home have a couple of options: 

  1. Become a household employer. You will need to obtain an EIN and pay your employee’s taxes, social security, Medicare, unemployment and workers comp insurance. Best practice is to utilize an accountant who can take care of the withholding for you and process the payroll for your nanny or sitter. You will also need to secure workers comp insurance for your nanny.  

  2. Hire a placement agency whose child caregivers are employees. Unlike most agencies, Home Rule hires all of our child caregivers, so you don’t need to worry about securing insurance or paying taxes and social security, or any of the other hassles of being an employer! We take care of it for you. We love to do everything we can to make your life easier.  

In addition to all of the above, there are some significant benefits of child caregivers as W2 Employees: 

  1.  It’s legal.

  2. Tax benefits. 

  3. The employee will have a work record so he or she can establish credit and make purchases and secure loans for items such as a car or home.  

  4. Employee will be building retirement through social security.  

  5. Loyalty. 

  6. Accountability.

  7. Ability to direct the care and activities.  

  8. Insured. 

IRS Publication 926
Cat. No. 64286A
Household
Employer's
Tax Guide
For use in 2020

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