Calling Mary Poppins - training, employment, finances, and background check procedures for hiring nannies

Kiplinger's Personal Finance Magazine, Feb, 1999 by Stephanie Gallagher, James Ramage

Nannies owe income taxes, too, and if you withhold those taxes, you have to get the money to the federal government either through quarterly estimated payments or withholding from your paycheck. All states except California require quarterly payments. If you don't withhold the nanny's taxes, it is up to her to make quarterly estimated tax payments.

Parents employers also have to shell out money for unemployment insurance. At the cost is minimal--top-out at $56 per year per worker--and like social security and medicare it is included in family's federal estimated tax payments or paycheck withholding. State unemployment insurance is typically 2% to 4% of the nanny's salary, up to as much as $250 a year.

For many parents, it's not the difficulty forms or even the amount of tax they have to pay that drives them crazy--it's keeping track of the deadlines. Once you're registered as an employer, most states send you a blank return each quarter for unemployment insurance, but state income-tax withholding is frequently done with coupon books, which means you have to keep track of the due dates. Often, state and federal deadlines do not coincide.

Several nanny-tax services can help (see the box at left for details). But if you want to handle the taxes yourself, contact the IRS at 800-829-3676 to get a federal employer identification number. Ask for Form SS-4 and Publication 926. You'll also need to contact your state tax authorities. If you need help getting started, Home/ Work Solutions (800-626.4829) has a Quick Start guide ($175) that gives you sample completed tax forms, a calendar of due dates for each state and a handbook that explains the process step by step. And you can get an idea of how much to withhold from your nanny's paycheck by checking out the free Nanny Tax Calculator on the Home/Work Solutions Web site (www.4nannytaxes.com/freecalculator.htm).

WORKER'S COMPENSATION. In most states, household employers must buy worker's-compensation coverage. This insurance, which is provided through a state insurance fund or by private insurers, protects you in case your nanny is hurt on the job. For example, if your nanny slips in your kitchen and breaks her leg, worker's comp will not only cover her medical bills, it also compensates her for wages lost due to the injury and protects you from being sued for negligence. Even if it is not required in your state, this insurance is a must for any household employer.

Premiums shouldn't be more than $500 a year--and are often much less. (The Clarks pay about $100 a year for coverage through a state fund.) Check with your insurance agent for rates.

CAR INSURANCE. If your nanny will be driving your children to school or other activities, it's vital that you update your auto insurance. "Almost all policies have an exclusion for using the car for business purposes," notes John Lewis, a Boston lawyer who specializes in personal-injury litigation. The question is whether a nanny who drives your kids to school is driving the car for business purposes. Check with your insurance agent to be sure. You may have to add the nanny to your policy, or you may need to change the coverage to include commercial use of the car.