Colorado Nanny Tax Rules
Household Employer Guide
Need help with the legalese around Colorado nanny tax rules? Trying to figure out how to pay your household employee the right way?
We’ve put together a bunch of useful info for you here. If it still seems like too much, we can handle everything for $49 a month. The first month is even free!
If you pay a household employee such as a nanny, babysitter, caregiver or house manager more than $2,600 a year or $1,000 in a quarter to perform work in your home (or occasionally even out of your home such as in a nanny share), you are a household employer.
There are important benefits to following the law. It gives your employee Social Security, Medicare and Unemployment Insurance benefits. It also allows her to build her credit. Paying legally sets you up to take advantage of tax credits for dependent care. Finally, you never know when you might get nominated for the Supreme Court. And, we all know how that ends if you haven’t paid your nanny taxes.
As a household employer, you must comply with certain tax obligations, commonly referred to as the “nanny taxes” or “household payroll taxes.” It’s complicated, but generally, after you have registered as an employer with all the appropriate agencies, you must:
- Register – You need to obtain a Federal Employer Identification Number, register with the Colorado Department of Revenue and the Colorado Department of Labor.
- Report your employee – All employees must be registered with the State within 20 days of hiring.
- Payroll - At every pay period, withhold Social Security, Medicare and income taxes from the employee’s paycheck per the employee’s W4 elections and make employer contributions to the Social Security and Medicare and unemployment funds.
- Quarterly - submit the proper paperwork and payments to the correct agencies. The agencies will typically include the IRS and the State.
- Year-End - provide your employee with his or her W-2 form, submit such information to the Social Security Administration, submit state reconciliations and prepare a Schedule H to file with your individual tax returns.
- Local Taxes – In Colorado, certain municipalities, including Denver, Aurora, Greenwood Village, Sheridan and Glendale require household employers to register and pay an “Occupational Privilege Tax”.
You can find all the information about your federal obligations in the IRS’s Publication 926 – Household Employer’s Tax Guide and your Colorado obligations in the Colorado Employer Guide and the Colorado Department of Revenue website.
The IRS estimates that it would take you 60 hours to comply with the federal nanny tax regulations. That does sound, well, taxing. Poppins can take care of all of it for $49 a month! That includes all your state and federal registrations, new hire reporting, payroll calculations and direct deposit, quarterly state and federal filings and the year-end documents for you and your employee. This first month is even FREE!
If you decide to handle payroll and taxes yourself, you’ll need to know about these forms:
Form I-9: Have your employee complete this form when hired and provide the required proof of ID.
Form W-4: Have your employee complete this form which dictates how federal income tax is withheld.
Form 1040-ES: On a quarterly basis send this form to the IRS along with payment to report taxes from previous quarter. Don’t forget that federal quarter dates do not always line up with calendar quarters!
Form W-2: Fill out Form W-2 if you pay wages of $1,000 or more, and give Copies B, C and 2 to your nanny. Copy A (along with Form W-3) goes to the Social Security Administration.
Schedule H: If you pay your nanny cash wages of $1,000 or more in a calendar quarter or $2,600 in a calendar year, file Schedule H.
Colorado Directory of New Hires: Complete this form to report your new employee to the State.
DR 0004: Have your employee complete this form which dictates how Colorado income tax is withheld.
CR 0100AP: File this application to establish a Colorado Withholding Account.
UITL-100: File this application to establish a Colorado Unemployment Insurance Tax Account.
UITR-1 and DR 1094: On a quarterly basis file these reports (along with payment) with the State to report taxes and wages paid in the previous quarter.
DR 1093: On an annual basis, file this report with the State to reconcile wages and payments to the State.
But if that sounds like too much, Poppins can take care of all these filings for $49 a month! We gather all the information we need from you during signup, generate your forms through our system, make all the appropriate tax calculations, and submit everything on your behalf.
You are not required by law to have a written employment agreement with your nanny or household employee. Still, it is a really good idea to have a written employment agreement with your employee.
A written employment agreement spells out the obligations of both parties, including hours, compensation, duties, benefits and PTO. This is really important if the relationship doesn’t work out, and there is ever a dispute. Just as important, it helps you discuss the important issues with your employee at the outset. This way you make sure you have a good relationship and understanding before you even start.
If you decide to go this route, we’ve put together a Sample Nanny Contract and a Sample Caregiver Contract for your reference. This should give you a good idea of the issues that are usually covered.
Colorado’s minimum wage is $13.65 per hour. The minimum wage in Denver is $17.29.
Household employers in Colorado must pay overtime at 1.5 times the regular rate of pay after 40 hours of work in a calendar week. If your employee lives in your home, you do not have to pay overtime.
Your employee is entitled to minimum wage and overtime regardless of whether they are paid hourly or salary. If they are paid by salary, it is best practice to document the hours worked (and the pay rate) included in the salary amount.
Colorado law requires employers to give employees an itemized paystub with every paycheck. With Poppins Payroll, you can have paystubs emailed directly to your employee every payday.
At the time of an employee's separation from employment, Colorado employers must give their employee a notice of the availability of unemployment compensation benefits, which includes contact information to file an unemployment claim and to check on a claim, the employee’s start date and last day of work, the employee’s year-to-date earnings and wages for the last week worked, and the reason for the separation of the employee from the employer. The state provides a form.
Colorado household employers are required by law to have workers' compensation insurance if their employee works 40 or more hours a week or works 5 or more days a week. Workers' comp insurance provides benefits to your employee in the event of an on-the-job injury. It can also limit an employer’s liability.
We’ve partnered with Bhalu Insurance, because they’re THE experts in Workers Comp Insurance for household employers. In fact, that’s literally all they do. Check out their site for a free quote or give them a shout. We think they’re pretty awesome.
If you choose to reimburse your employee for driving on the job, you can use the current federal mileage reimbursement rate. Mileage reimbursement is not considered taxable compensation.
Effective January 1, 2022, all Colorado employers are required to provide paid sick leave to their employees. Under the Healthy Families and Workplace Act, employees are entitled to accrue paid sick leave in the amount of one hour for every 30 hours worked, up to a cap of 48 hours per benefit year. In addition, on the day a public health emergency (like COVID) is declared, employers are required to supplement the number of hours accrued to bring employees up to the following paid sick leave allotments immediately: (1) for employees who normally work 40 or more hours in a week, at least 80 hours; or (2) for employees who normally work fewer than 40 hours in a week, at least the greater of either the number of hours the employee (a) is scheduled for work or paid leave in the upcoming 14-day period, or (b) actually worked on average in the 14-day period prior to the declaration of the PHE.
Under Colorado law, accrued PTO or vacation pay must be paid upon termination of employment even if the separation is voluntary.
Colorado provides up to 12 weeks of paid family and medical leave (PFML) funded through a payroll tax paid by both employers and employees in a 50/50 split. Employers and employees will start paying into PFML in 2023, and the earliest employees will be able to take this paid leave is January 1, 2024.
Household employers must keep accurate records of hours worked by employees and wages paid on an ongoing basis. These records must be kept for at least 3 years. With Poppins, we’ll keep all this information in your online filing cabinet, which you’ll be able to access even after you’re not using us to run your payroll.
All employers are required to post a number of notices for the benefit of their employees.
THE CONTENT OF THIS WEBSITE IS GENERAL AND INFORMATIONAL IN NATURE AND MAY NOT BE APPROPRIATE FOR YOUR SPECIFIC CIRCUMSTANCES. THE INFORMATION IS NOT INTENDED TO PROVIDE LEGAL OR TAX ADVICE, AND SHOULD NOT BE RELIED UPON WITHOUT CONSULTING WITH AN ATTORNEY AND/OR TAX PROFESSIONAL.