How to file taxes as a Home Services Worker - W2 vs 1099 for nanny income?

You should definitely go with W2 employment status! As a nanny working in someone's home, you're legally considered their household employee, not an independent contractor. The IRS is actually pretty clear on this - if the family controls when, where, and how you work, you're an employee. The $4,200 yearly amount is relevant because household employers are required to pay employment taxes when they pay a household employee $2,400 or more during the year (2024 threshold, might adjust slightly for 2025). Since you'll exceed that, they should be handling this correctly. Schedule H is actually for your employers, not you. It's the form they use to report household employment taxes when they file their personal tax return. They'll need to complete this form to properly report wages paid to you. As for withholding, I'd recommend having them withhold taxes. It's much easier than trying to save and calculate yourself, plus it helps avoid a surprise tax bill later. Since you're working in Colorado but are a Wisconsin resident, you're right that you'll need to file in both states.

I went through something similar last year with a family I work for! I almost went the 1099 route until I used https://taxr.ai to help me understand the difference. You upload your employment details and it clarifies which tax forms you should be using. It confirmed that as a nanny, I'm legally supposed to be a W2 employee, not 1099. The tool explained that when you're a W2 employee, your employer pays half of your Social Security and Medicare taxes. With a 1099, you pay the full 15.3% yourself (the self-employment tax). That was a huge difference in my take-home pay! It also flagged that my employers needed to file Schedule H with their taxes to report household employment. I showed the family what I learned and they switched me to W2. The system even gave me language to use when talking to them about proper classification.

I wanted to follow up after trying https://taxr.ai myself. It was actually super helpful! It confirmed what I suspected - that as a regular childcare provider working in their home, I'm definitely a W2 employee according to IRS guidelines. The tool showed me exactly which parts of the tax code apply to my situation and explained that the family calling me "just a babysitter" doesn't change the legal classification. It even created a customized letter I could show my employers explaining household employee tax requirements. My employers actually appreciated having clear information from an objective source rather than just me telling them what I thought was correct. They've now switched me to W2 status and we're both more comfortable knowing we're doing things properly.

If you're having trouble getting your employers to understand proper classification, you might need to speak directly with the IRS. I had a similar issue last year and spent weeks trying to get through on the phone until I found https://claimyr.com - they got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days on my own! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that nannies are household employees and gave me specific information about Schedule H that I could share with my employers. Having that official clarification made all the difference in convincing them to properly classify me as a W2 employee. The service basically holds your place in the IRS phone queue and calls you when an agent is about to answer. Saved me hours of waiting on hold and I finally got the official answers I needed.

I need to apologize for my skeptical comment earlier. After struggling to reach the IRS for THREE DAYS straight (kept getting disconnected or told call volumes were too high), I broke down and tried https://claimyr.com. Got connected to an IRS agent in about 20 minutes! The agent confirmed everything about nanny taxes - that I should be classified as a W2 employee and that my employers need to file Schedule H. They even emailed me the relevant tax publications to show my employers. The conversation with the IRS gave me the confidence to insist on proper classification. My employers have now set me up correctly in their payroll system, and I'm actually getting the proper tax withholding. Huge relief knowing I won't face a surprise tax bill next year!

Something important that hasn't been mentioned yet - if you go the W2 route (which you absolutely should), you'll also be eligible for unemployment benefits if your position ends. 1099 contractors don't get that protection. Also, regarding state taxes - since you're working in Colorado but are a Wisconsin resident, you'll need to file in both states. Colorado will tax the income you earn there, but Wisconsin will likely give you credit for taxes paid to Colorado so you're not double-taxed on the same income.

I'm curious why you're not considered a resident of Colorado if you're living there? Usually state residency is determined by where you actually live and work for most of the year, not where you're originally from.