Illinois Nanny Tax Rules
Our Guide for Illinois Household Employers
Need help with the legalese around Illinois 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 $45 a month. The first month is even free!
Am I a household employer?
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.
Why pay nanny taxes?
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.
So what are my tax obligations as a Illinois household employer?
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 and register with MyTaxIllinois.
- 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 and Il-W-4 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 and prepare a Schedule H to file with your individual tax returns.
You can find all the information about your federal obligations in the IRS’s Publication 926 – Household Employer’s Tax Guide and your Illinois obligations on the Illinois Department of Employment Security website and Illinois Department of Revenue Publication 121.
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 $45 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!
What are the required tax and legal forms?
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 Social Security and Medicare 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.
Illinois Department of Employment Security New Hire Report: Complete this form to report your new employee to the State.
Il-W-4 (IL-W-5-NR for exempt employees): Have your employee complete this form which dictates how Illinois income tax is withheld.
REG-UI-1: File this application to establish an Illinois Unemployment Insurance Tax Account and an Illinois Withholding Account.
IL-1040-ES: On a quarterly basis file these reports with the State along with payment to submit withholding taxes. Illinois tax quarters are the same as the federal tax quarters, and do not always line up with calendar quarters.
UI-HA: On an annual basis, file this report (along with payment) with the State to report taxes and wages paid in the previous quarter.
But if that sounds like too much, Poppins can take care of all these filings for $45 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.
Do I need to have a written contract with my employee?
Illinois household employers are required to provide employees with notice at the time of hire (and prior to any subsequent changes) of the rate of pay and of the time and place of payment. This notice should be in writing. You are not otherwise 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.
What other laws do I need to know about?
Illinois’ minimum wage for 2023 is $13 per hour. The state minimum wage then increases by $1 per hour each January 1 until it reaches $15 per hour in 2025.
In Chicago, the minimum wage for household employers is currently $14.50 per hour. It will likely increase on July 1, 2023. Chicago household employers must post a notice informing their employees about the minimum wage requirements.
Certain municipalities in Cook County (but outside of Chicago) require household employers to pay $13.00 per hour and post a notice. If you are in Cook County, you should check with your municipality to see if it has opted out of the Cook County minimum wage requirements.
Household employers in Illinois 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.
DAY OF REST
Under the Illinois One Day in Seven Act, a domestic worker is entitled to at least 24 consecutive hours of rest in every calendar week. If the domestic worker voluntarily agrees to work on the employee’s day of rest, the employer must compensate the employee at the overtime rate for all hours worked that day. The day of rest should coincide with the traditional day reserved by the domestic worker for religious worship.
An employer must permit employees to take at least a twenty (20) minute meal period for each continuous 7½ hours they work. For example, if an employee is scheduled to work fifteen (15) hours in one continuous shift, the employer would be required to permit the employee to take two twenty (20) minute breaks. The meal period can be unpaid if the employee is relieved from all duties and it lasts for more than 20 minutes.
SALARY OR HOURLY WAGES?
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.
Illinois 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.
Illinois household employees have the right to be paid at least twice a month.
WORKERS’ COMPENSATION INSURANCE
Illinois household employers are required by law to have workers' compensation insurance if their employee works 40 hours a week for at least 13 weeks during a calendar year. 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.
Illinois law does not require household employers to provide paid or unpaid sick leave; however, both Cook County and the City of Chicago have enacted paid sick leave requirements. Note that many municipalities in Cook County have opted out of the requirements.
Generally, an employee in Chicago (or certain other portions of Cook County) is entitled to earn 1 hour of paid sick leave for every 40 hours worked up to a maximum of 40 hours of paid sick leave earned in one year. An employee cannot use any of the sick leave unless he or she has also worked for her employer for at least 80 hours during any 120-day period.
Employers are also required to post notices: Cook County Notice and Chicago Notice.
You can find more information regarding the Chicago requirements on the Business Affairs and Consumer Protection website and regarding the Cook County requirements on the Cook County website.
All employers are required to post a number of notices for the benefit of their employees.
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 5 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.
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.