Pennsylvania Nanny Tax Rules

Our Guide for Pennsylvania 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. You can even try Poppins for 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 Pennsylvania 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 Pennsylvania Department of Labor and Industry and the Pennsylvania 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 REV-677 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 Pennsylvania obligations in the Pennsylvania DOLI Employer’s Reference Guide to Unemployment Compensation and the Pennsylvania DOR Employer Withholding Information Guide.

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. You can even try Poppins for 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 REV-677: Have your employee complete this form which dictates how Pennsylvania 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.

Pennsylvania Directory of New Hires: Complete this form to report your new employee to the State.

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.

Do I need to have a written contract with my employee?

You are not required by Pennsylvania law to have a full written employment agreement with your nanny or household employee unless you are located in Philadelphia. You are required by Pennsylvania law to give your employee written notice at the time of hiring of the rate of pay, the time and place of payment, and the amount of any fringe benefits and any later changes.

Philadelphia employers hiring domestic workers must provide a written contract in the worker’s preferred language, signed by both parties. The contract must clearly outline wages, payment schedule, work hours, job duties, overtime pay, breaks, and time off policies, including paid sick leave. If the worker lives in the home, the contract should also address living arrangements. Employers must include a termination policy with notice requirements and ensure compliance with Philadelphia’s Paid Sick Leave Ordinance. Prior to execution, a domestic worker must have at least 7 days to review and approve the terms of employment.

Regardless of the requirements, 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?

MINIMUM WAGE

The Pennsylvania minimum wage is $7.25 per hour.

OVERTIME

Household employers in Pennsylvania must pay overtime at 1.5 times the regular rate of pay after 40 hours of work in a workweek. If your employee lives in your home, you do not need to pay overtime.

SALARY OR HOURLY WAGES?

In Pennsylvania, household employees effectively must be paid by the hour, rather than by salary. The Poppins system ensures that all Pennsylvania payroll is hourly to comply with the law.

WORKERS’ COMPENSATION INSURANCE

Pennsylvania household employers are not required by law to have workers' compensation insurance, but you may want to consider obtaining this coverage. Note that most other employers in Pennsylvania are required to have workers’ comp insurance. 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.

MILEAGE REIMBURSEMENT

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.

PAY PERIODS

Pennsylvania employees have the right to be paid at least twice a month. With Poppins Payroll, you can choose from weekly, bi-weekly and semi-monthly pay periods, all of which comply with Pennsylvania requirements.

TERMINATION WAGES AND NOTICE

A Pennsylvania employee who has been discharged or quits, is entitled to be paid all wages no later than the next regular payday. An employer must send the wages to the employee by certified mail if the employee requests it.

Form UC-1609 (Employer Information Form) must be completed and provided to all separating employees and/or employees working reduced hours. There is also a form available for Spanish speaking employees: Form UC-1609(ESP).

POSTING REQUIREMENTS

There are a number of other notices that Pennsylvania employers must post or provide to their employees.Additional notices are required in Philadelphia and Pittsburg.

PAYROLL RECORDS

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 4 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.

PHILADELPHIA PAID LEAVE

In Philadelphia, employers with ten or more employees must provide paid sick leave, and employers with nine or fewer employees must provide unpaid sick leave. Employees who have been employed for a minimum of 90 days can earn one hour of sick leave for every 40 hours worked with a maximum of 40 sick leave hours earned in a calendar year. Employers are required to notify employees that they are eligible for sick leave and the amount of sick leave to which an employee is entitled as well as the terms of its use.

PITTSBURG PAID LEAVE

In Pittsburgh, employers must provide each employee at least one hour of paid sick time for every 35 hours worked. Employers with 15 or more employees may cap paid sick time at 40 hours per calendar year. Employers with fewer than 15 employees may cap paid sick time at 24 hours per calendar year. Accrued, unused sick time must carry over from one calendar year to the next up to the applicable cap.

PHILADELPHIA REST PERIODS

The City of Philadelphia provides certain protections for domestic workers. In Philadelphia, a live-in domestic worker may not be required to work more than six consecutive days without a 24-hour rest period. Any domestic worker is entitled to a 10-minute rest period after every 4 hours of work and a 30-minute meal break after 5 hours of work.

LOCAL TAXES

In Pennsylvania, employers are responsible for withholding and remitting various local taxes on behalf of their employees. These taxes vary by municipality and school district, so it’s essential to verify specific rates based on the employee’s work and home locations. These are generally grouped into Local Earned Income Tax (EIT) and Local Services Tax (LST). Employers must register with the local tax collection district (TCD) where their business operates and/or a third party tax collector. Employers must file local tax returns and ensure accurate withholding based on employee residence and work location.

Poppins handles all the registration, calculation, reporting and payment of Pennsylvania local taxes for you! So, you can relax, while we’re hard at work.

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.