I'm Hiring a Nanny (a nurse, a gardener, a maid...) do I need to give them a W-2 and withhold taxes?
There are specific rules regarding whether a 1099 or a W-2 is needed, and it often comes down to the level of control you have over the individual. You to use the following factors to determine whether you have hired an employee or independent contractor.
Its often not clear cut - but nannies are often employees when you add it all up. Gardeners, not so much.
Why does it matter? Payroll taxes are expensive, and the cost of running payroll is expensive too. You can handle it yourself, but most end up using a payroll service. In addition to payroll and taxes, there are additional compliance concerns.
Household Payroll Procedures
Federal household payroll taxes are handled on your income tax return, but you will need to handle the state taxes separately (or through a service). If you pay $1900 in a year, or $1000 a quarter, you will file Schedule H with your 1040. On this schedule, you report Social Security (12.4%), Medicare (2.9%), and FUTA (0.6% of the first 7k). You can withhold half of the social security and medicare from the nanny pay, however, if you agreed with the nanny on a flat amount, you may end up paying the full amount of payroll tax yourself, raising the cost more than 15%.
For California, the threshold is $750 a quarter. If you pay more than $20,000 a year, you move from annual reporting to quarterly reporting. There are specific payroll tax forms for California. The state taxes aren't high, but there are several of them (SDI, UI, ETT).
If you determine that you are hiring an employee, I'd recommend that you contact a payroll service to help you with the paperwork.