New Jersey Nanny Tax Rules
Our Guide for New Jersey 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 $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 $2,400 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 New Jersey 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 the New Jersey 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 NJ-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.
You can find all the information about your federal obligations in the IRS’s Publication 926 – Household Employer’s Tax Guide and your New Jersey obligations in the Department of Labor and Workforce Development Employer Handbook and the Division of Taxation Income Tax Withholding Instructions.
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 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 $2,400 in a calendar year, file Schedule H.
New Jersey Directory of New Hires: Complete this form to report your new employee to the State.
NJ-W4: Have your employee complete this form which dictates how New Jersey income tax is withheld.
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?
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.
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?
The New Jersey minimum wage for small employers (fewer than 6 employees) is $11.90 an hour. It will increase to $12.70 an hour on January 1, 2023, to $13.50 an hour on January 1, 2024, to $14.30 an hour on January 1, 2005 and to $15 an hour on January 1, 2026.
Household employers in New Jersey 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.
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.
New Jersey household employees have the right to be paid at least twice a month.
WORKERS’ COMPENSATION INSURANCE
Household employers in New Jersey are required to carry workers’ compensation insurance. 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 taxes, enter mileage reimbursements as a “Reimbursement” amount on your payroll.
If a New Jersey employee is terminated or quits, he or she must be paid by the next regular payday.
There are a number of other notices that New Jersey employers must post or provide to 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 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.
FOOD AND LODGING CREDIT
Under New Jersey law, an employer is permitted to credit toward any wages due the fair value of food and lodging that is provided. Records of the actual costs to the employer must be kept. An employer cannot make a credit if the food or lodging primarily benefits the employer instead of the employee. In general, lodging would be considered to primarily benefit the employer if the employee provides round-the-clock care, or if the employee’s sleep or off-duty time is regularly interrupted to perform work for the employer; for example, a live-in nanny for an infant, or a home care worker whose client needs constant care.
New Jersey employers of all sizes must provide full-time, part-time, and temporary employees with up to 40 hours of paid sick leave per year so they can care for themselves or a loved one. Employees must accrue at least 1 hour of earned sick leave for every 30 hours worked, up to a maximum of 40 hours of leave per benefit year. Instead of applying the accrual method described above, you may choose to advance employees with at least 40 hours of earned sick leave on the first day of the benefit year, for use throughout the benefit year. An employee may carry over up to 40 hours of unused earned sick leave to the next benefit year. However, an employer is only required to let an employee use up to 40 hours of earned sick leave per benefit year. An employer is not required to pay an employee for unused earned sick leave. If you terminate, lay off or furlough an employee, then rehire or reinstate her/him within six months, the prior accrued/advanced sick leave must be returned to the employee.
NJ FAMILY LEAVE INSURANCE & TEMPORARY DISABILITY INSURANCE
NJ Family Leave & Temporary Disability Insurance provides cash benefits to employees in New Jersey who are unable to work (a) because they need to care for a family member with a physical or mental health condition, bond with a newborn, newly adopted or newly placed foster child, or handle certain matters related to domestic or sexual violence; or (b) due to a physical or mental health condition or other disability unrelated to their work, including pregnancy/childbirth recovery and COVID-19. As of July 1, 2020, workers can collect Family Leave Insurance benefits for a maximum of 12 consecutive weeks in a 12-month period, or up to eight weeks (56 individual days) in a 12-month period, if taking leave in a non-continuous manner. The Family Leave program is financed 100% by worker payroll deductions. Both employers and employees contribute to the Temporary Disability program. At Poppins, we make all these calculations for you on every paycheck and submit payments to the state along with all the required reporting.
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.