Vermont Nanny Tax Rules
Our Guide for Vermont 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!*
If you pay a household employee such as a nanny, babysitter, caregiver or house manager more than $2,700 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 Vermont Department of Labor and Vermont Department of Taxes.
- 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 W-4VT 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 Vermont obligations in the Vermont Department of Labor Employer Information Manual and the Vermont Department of Taxes Withholding 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!*
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 W-4VT: Have your employee complete this form which dictates how Vermont 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 $2,700 in a calendar year, file Schedule H.
Vermont 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.
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.
Household employers are not subject to the Vermont minimum wage. So, the federal minimum wage of $7.25 per hour applies to household employers in Vermont.
Household employers in Vermont 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.
In Vermont, household employees effectively must be paid by the hour, rather than by salary. The Poppins system ensures that all Vermont payroll is hourly to comply with the law.
Vermont household employers are not required by law to have workers' compensation insurance, but you may want to consider obtaining this coverage. 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.
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.
Vermont law requires employers to give employees an itemized paystub with every paycheck. With Poppins Payroll, we generate paystubs that comply with the law and emailed directly to your employee every payday.
Vermont household employees have the right to be paid weekly; however, after providing written notice to your employees, you may issue paychecks on a bi-weekly basis. Each payday must be within 6 days of the end of the pay period. An employer must have written approval from their employee to pay by direct deposit.
If a Vermont employee is terminated, they must be paid within 72 hours of discharge. If an employee voluntarily leaves employment, they must be paid on the next regular payday, or if there is no regular pay day, on the following Friday. If an employee is absent from their regular place of employment on the employer’s regular scheduled date of wages or salary payment, they shall be entitled to payment upon demand.
There are a number of other notices that Vermont 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.
If your household employee works an average of at least 18 hours per week during a year, you must provide paid sick leave. Your employee must earn 1 hour of paid sick time for every 52 hours worked, up to a maximum of 40 hours per year. You may require a waiting period for a newly hired employee of up to one year. During this waiting period, your employee must accrue earned sick time, but you may prohibit the use of earned sick time until after your employee has completed the waiting period. You can find more information in Vermont DOL’s Frequently Asked Questions and Earned Sick Time Rules.
Vermont employers with 5 or more employees who do not offer health insurance to their employees must contribute to the Health Care Fund Contribution Assessment. The purpose is to require certain employers to contribute to the cost of health care incurred by the state.
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.
