Part-time nanny income reporting - paid through Venmo with no taxes withheld

Do nannies always count as self-employed? I thought sometimes they're considered household employees if the family controls when and how they work? Something about nanny taxes that the family should pay?

That's an excellent point! You're absolutely right, and I should have clarified this important distinction. Whether a nanny is self-employed or a household employee depends on who controls the work. If the family dictates when, where, and how you work, provides equipment, and directs your daily activities, you're legally a household employee, not self-employed. In this case, the family should be withholding taxes and providing a W-2. They're responsible for paying "nanny taxes" which include Social Security, Medicare, and unemployment taxes. If this is your situation, you should discuss this with the family as they may have obligations they're unaware of.

How accurate is it with identifying which Venmo payments are actually income vs friends paying you back for dinner or whatever? I get a mix of payments and don't want to accidentally report friend reimbursements as income.

Does it connect directly to Venmo or do you have to download statements first? And what about privacy - I'm always nervous about connecting my financial accounts to new services.

It's surprisingly good at distinguishing between income and personal transfers! The AI looks at patterns, descriptions, and frequency. For anything it's unsure about, it flags for you to review, so you can manually confirm which are business vs personal. I had to correct a few, but it got most of them right. You need to download your statements first and then upload them to the service. They don't directly connect to your accounts, which I actually preferred for security reasons. Their site explains that they use bank-level encryption and don't store your raw financial data after processing, which made me feel better about using it.

Wait, how does this actually work? The IRS phone system is notoriously impossible to get through. How can a third-party service magically get you through?

This sounds like complete BS honestly. No service can "skip the line" with a government agency. They're probably just charging people for what they could do themselves for free if they just stayed on hold long enough.

It's not magic - they use an automated system that continually calls the IRS and navigates the phone tree for you. When their system finally gets through to an agent, it connects the call to your phone. So instead of you personally waiting on hold for hours, their system does it. They don't skip any lines or have special access - they just handle the frustrating waiting part. I was skeptical too but when I needed specific answers about my situation, it was worth it to actually speak to someone official. After trying myself and giving up after 2+ hours on hold, getting connected in about 15 minutes was pretty amazing.

But if you're technically a household employee (W-2) rather than self-employed (Schedule C), can you still deduct those expenses? I thought most of those deductions went away with the tax law changes.

You're absolutely right, and that's an important distinction I should have made. If you're properly classified as a household employee receiving a W-2, those work expenses are unfortunately no longer deductible for employees since the 2018 tax law changes eliminated unreimbursed employee business expenses for most workers. Those deductions only apply if you're legitimately self-employed and filing Schedule C. This is actually why some nannies prefer to remain independent contractors despite the technical classification issues - the tax deductions can be valuable. But it's important to follow the correct classification based on your actual working arrangement.

Do you have to pay quarterly estimated taxes? Or can you just pay it all when you file? I've been nannying for 6 months and haven't paid anything yet...

Technically, if you expect to owe $1,000 or more in taxes for the year, you're supposed to make quarterly estimated tax payments. I didn't know this my first year and got hit with a small penalty on top of my tax bill. The IRS has a form called 1040-ES for making these quarterly payments. The due dates are April 15, June 15, September 15, and January 15 (for the previous year's last quarter). If you haven't been making payments, I'd recommend setting aside money now and starting with the next quarter. The penalties aren't huge if you pay everything by the annual filing deadline, but it's better to avoid them if possible.

This is really helpful advice! I'm actually in a similar situation as a grad student with some side income. Quick question about the education credits - can you claim those if you're receiving a graduate assistantship or fellowship that already covers tuition? I wasn't sure if there are income limits or restrictions when you're getting other forms of educational funding. Also, regarding the 1099-NEC form - what should you do if the family refuses to issue one or doesn't understand their obligations? Is there a way to report them to the IRS, or do you just proceed with reporting the income anyway and hope for the best?

Great questions! For education credits as a grad student, it gets tricky. If your fellowship/assistantship covers qualified education expenses (tuition, required fees), you generally can't also claim those same expenses for education credits - that would be double-dipping. However, if you pay for books, supplies, or other qualifying expenses out of pocket beyond what your funding covers, those might still be eligible. There are also income limits for education credits that phase out at higher income levels, so your nanny income plus any other earnings could potentially disqualify you. The American Opportunity Credit phases out between $80,000-$90,000 for single filers, while the Lifetime Learning Credit phases out between $59,000-$69,000. As for the 1099-NEC situation - you absolutely should report all your income regardless of whether they issue the form. The IRS cares more about you reporting honestly than whether you received the proper paperwork. You can't really "report" the family to the IRS for not issuing a 1099, but if they're paying household employee wages incorrectly, that's actually their tax compliance issue to deal with. Focus on getting your own taxes right first!

This is such great advice about checking with your university! I wish I had known about those services when I was dealing with my mixed income situation as a grad student. Just wanted to add one more thing about FreeTaxUSA - when you get to the self-employment section, make sure you categorize your nanny work correctly. I initially put mine under "other services" but later realized "child care services" was more accurate and actually opened up some additional expense categories I could deduct. The software is pretty forgiving about going back and changing things, but it's easier to get it right the first time. Also totally agree about the quarterly payments setup - I ignored that prompt my first year thinking I'd just deal with it later, and ended up scrambling to figure out how much to pay and when. The software's estimate is usually pretty close to what you'll actually need to pay throughout the year.

This is really helpful clarification about the employee vs contractor distinction! I'm actually dealing with a similar gray area situation right now. The family I work for sets my general schedule (like "Tuesdays and Thursdays 3-7pm") but I have flexibility in what activities I do with the kids and I bring my own supplies sometimes. It sounds like there's a lot of nuance here - do you know if there are any official IRS guidelines or tests that help determine which category you fall into? I'd rather get this right from the start than have to deal with reclassifying later. And did you end up having any issues when you filed, or did everything go smoothly with FreeTaxUSA? Also appreciate the reminder about quarterly payments - I keep seeing this mentioned and it's definitely something I need to research more since I plan to keep doing this work next year.

Yes, the IRS does have specific guidelines! They use what's called the "common law test" which looks at three main categories: behavioral control, financial control, and relationship type. For behavioral control, they look at whether the employer has the right to direct how the work is done. Financial control considers who provides tools/supplies, how you're paid, and whether you can make a profit/loss. The relationship aspect looks at written contracts, benefits, and whether the work is a key part of the business. Your situation with set days but flexible activities sounds like it could go either way - the key is often the degree of control. If they're just saying "watch our kids these days" vs "follow this specific daily schedule and use these exact methods," that makes a difference. I didn't have any issues with FreeTaxUSA - it handled everything smoothly and the interview process helped me feel confident about my classification. The software actually asks detailed questions about your work arrangement that map pretty well to the IRS factors. For quarterly payments, Form 1040-ES has a worksheet that helps you calculate what to pay. Since you're starting mid-year, you might want to make a catch-up payment for the quarters you've missed to avoid penalties.

This is exactly the kind of comprehensive breakdown I needed to see! I'm in a very similar situation - part-time childcare work paid through digital payments with no formal tax structure. The $2,800+ calculation really puts it in perspective for how much I need to plan for. One quick follow-up question - you mentioned exporting Venmo transaction history, but I'm wondering about the descriptions. Some of my payments just say generic things like "childcare" or even just have emoji. Will the IRS need more detailed descriptions, or is having the date, amount, and basic category sufficient for reporting purposes? Also, that tip about categorizing as "child care services" instead of "other services" is gold - I probably would have missed that distinction and potentially lost out on relevant deductions. Thank you for such practical, actionable advice!