Minnesota Nanny Tax Rules
Our Guide for Minnesota Household Employers
Need help with the legalese around nanny taxes? 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 and register with the Minnesota Employment and Economic Development Department and the Minnesota Department of Revenue.
- 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 M-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, submit state reconciliations 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 Minnesota obligations in An Employer’s Guide to Employment Law Issues in Minnesota (note that this information may be a bit dated), the Minnesota Unemployment Insurance Employer Handbook and the Minnesota Department of Revenue Withholding Fact Sheet.
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.
Minnesota Directory of New Hires: Complete this form to report your new employee to the State.
M-4: Have your employee complete this form which dictates how Minnesota income tax is withheld.
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.
All Minnesota employers must provide employees with a written notice detailing important terms of employment, including how much the employee will earn, when they will be paid. The notice must include a statement, in multiple languages, that informs employees they may request the notice be provided to them in another language. The state provides a form that can be used by employers.
The City of Minneapolis has additional pre-hire written notice requirements. Minneapolis also provides a form that can be used by employers.
Both Minneapolis and non-Minneapolis employers are required to provide employees in writing any changes to the information in the notices before the date the changes take effect, and must keep signed copies of the notices.
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.
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.
The Minnesota minimum wage for 2023 is $8.63 an hour for small employers. The minimum wage in Minneapolis is $13.50 an hour and will increase to $14.50 on July 1, 2023. The St. Paul minimum wage is $10.75 per hour for micro employers (5 or fewer employees) and will increase to $11.50 per hour on July 1, 2023.
Household employers in Minnesota must pay overtime at 1.5 times the regular rate of pay after 40 hours of work in a workweek. You must also pay overtime if your employee lives in your home.
In Minnesota, household employees effectively must be paid by the hour, rather than by salary. The Poppins system ensures that all Minnesota payroll is hourly to comply with the law.
Minnesota 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.
Minnesota household employers are required to pay employees at least once a month.
Household employers in Minnesota must provide workers compensation insurance to employees who earn more than $1,000 in a quarter. Workers’ compensation 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. To ensure the amount is not taxed, enter mileage reimbursements as a “Reimbursement” amount on your payroll.
A terminated employee's paycheck must be paid within 24 hours of the employee's demand for wages. If an employee quits, wages are due on the next pay period that is more than five days after quitting. However, wages must be paid within 20 days of separation. An employer must give a truthful reason why an employee was terminated, if requested in writing by the employee within 15 working-days of termination. The employer has 10 working-days from receipt of the request to give a truthful reason in writing for the termination.
There are a number of other notices that Minnesota employers must post or provide to their employees. There are additional notices required by Minneapolis and St. Paul.
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.
Minnesota does not require employers to provide sick leave for employees; however, Minneapolis, St. Paul and Duluth have certain sick leave requirements.
The Minneapolis ordinance applies to all household employers. The St. Paul ordinance only applies if your employee works at least 80 hours a year. The St. Paul ordinance requires paid sick leave, but the Minneapolis ordinance only requires paid sick leave if you have 6 or more employees. In St. Paul, employers have a 6 month grace period before they have to provide paid leave. This grace period exception expires on January 1, 2021. Both the Minneapolis and the St. Paul ordinances require employers to provide employees with a minimum of one hour of sick and safe leave for every 30 hours worked, capped at 48 hours per year and 80 hours overall. Hours must begin accruing on the first day of work and may be used starting 90 days after the first day of work.
Employers must include sick and safe time accrual and use balanceson paystubs. With Poppins, you can track sickand safe leave and PTO in our system and it’ll automatically be included on your employee’s pay stub.The Duluth Safe and Sick Time Ordinance requires employers with 5 or more employees to provide paid leave, which is earned at a rate of one hour per 50 hours worked, for a maximum of 64 hours per year.
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.