The "nanny tax" trips up thousands of families every year. Here's everything you need to know — plus two trusted payroll services that make compliance effortless so you can focus on your family.
Based on $28/hr × 40hrs/wk — typical Denver full-time rate. Includes required Colorado workers' comp. Actual amounts vary by wages, state, and benefits. A payroll service calculates exact figures for your situation.
When you hire a nanny who works in your home, the IRS classifies them as a household employee — not an independent contractor. That means you have legal obligations as an employer, whether you like it or not.
Paying cash without withholding taxes exposes you to back taxes, penalties, and interest. It also means your nanny can't collect unemployment if you let them go.
The IRS is clear: household employees are W-2 employees. Issuing a 1099 is incorrect and can trigger an audit for both you and your nanny.
Proper payroll means your nanny earns Social Security credits, can claim unemployment if needed, and has a legitimate employment record — things they deserve.
Colorado law requires household employers to carry workers' compensation insurance for any employee working 40+ hours per week. If your nanny is injured on the job without coverage, you are personally liable for medical bills and lost wages — which can be substantial. GTM can bundle this into your payroll service.
A good nanny payroll service handles all of this for you automatically. Most families pay $500–$1,500/year for full-service payroll — a fraction of the risk of non-compliance.
These taxes are reported on Schedule H, filed with your personal tax return each year. A payroll service handles all of this — you don't need to know the details, just find a good partner.
The Dependent Care FSA allows you to set aside up to $5,000 pre-tax per household for childcare expenses — which can offset much of your payroll tax cost. Ask your payroll provider about this.
We've vetted both of these services and recommend them with confidence. Both specialize in household employment — unlike general payroll companies, they know the specific rules that apply to nannies and domestic workers.
GTM is our primary payroll partner and the service we refer most frequently to families placing through Cherry Creek. They specialize exclusively in household employment and offer end-to-end payroll, tax filing, HR support, and even workers' compensation insurance — all in one place.
HomeWork Solutions has been the leading household payroll service in the country since 1993 — longer than almost anyone. They've processed over half a million household tax returns and are regularly cited by the Wall Street Journal and Kiplinger as the go-to source for nanny tax expertise. Three service tiers to fit any family's needs.
Both are excellent and our families have had great experiences with each. GTM is ideal if you want the most hands-off, all-inclusive experience. HomeWork Solutions is great if you'd like flexibility across three pricing tiers. Either way, both are a significant upgrade over doing it yourself or ignoring it entirely. Have questions? Ask us on your consultation call.
We handle the placement — finding you a vetted, professional nanny who's the right fit for your family. Our payroll partners handle the taxes. Together, you get the full picture, done right.
Cherry Creek Nanny Agency places families in Denver, Chicago, New York, Dallas, Nashville, and Charlotte — with the same vetted, personalized approach in every market.