How does nanny payroll/taxes work? Worth it to use agency?

We use Poppins Payroll and have found it to be super easy. They helped us get an EIN and do all of the taxes. Basically all I have to do is have our bank account linked and enter her hours every week. There are other, similar services out there, but we chose Poppins because it was a little bit more cost effective when we first looked three years ago. For our circumstances I feel strongly about hiring above board and having our nanny be an employee, but lots of people pay cash and don't worry about any of this.

We love poppinspayroll, it's very easy and yes they set up all the IDs for you. I don't have any experience with an agency, but typically they require a significant up front fee, and I'm not sure they would necessarily handle payroll. There are so many great nannies available locally that I'm not sure an agency is needed, but it may provide some peace of mind if you are wary about the process.

Yes, if you are hiring a nanny directly and paying them more than ~$2,500 per year then you are considered an employer and must file taxes and paperwork with CA and the IRS accordingly. There are products out there to streamline this. We used Poppins for this, and the cost is reasonable at $49/month. They handle getting you registered as an employer, tracking sick leave, handling the forms you need to give the nanny for their tax purposes, etc. It was a pain, but it worked well. Here is their site: https://www.poppinspayroll.com/

Of course many people around here just pay their nannies under the table. The nannies often prefer that as well. You'll often need to pay a higher rate so that their take-home pay ends up being the market rate after taxes are taken out.

To me the risk of paying under the table was not worth it, so we did everything above board. But it's much harder and more expensive, for sure.

Payroll agencies or apps are very accessible and easy to use. Your life will be much easier.

We use Homepay ( I believe it's one of the more expensive ones.) and has had great success over many years. 
In When tax season comes around, the W-2 is issued through the app and easy for the Nanny to access. 
I've also heard Poppins is a great app and a little bit cheaper but I know there's a few more out there. 
SurePayroll, GTM Payroll Services, or Savvy Nanny Payroll Services, can be good, but I've heard some issues with all of those. 
All are easy, set up and so easy to use. 

I use a service and can't imagine trying to do it on my own.  Worth the $. Also worth doing this the legal way instead of paying under the table. My nanny applied for a home loan last year and had to show legal wages to qualify.  I was glad she was able to do it.  The service I use is Savvy Nanny Payroll www.savvynannypayrollservices.com I like it. It is based here in Berkeley.  Once you are set up in their system, you just log in hours your nanny works and you can pay direct deposit through the service. They automate taking taxes out so there is really not anything to do there.  Setting up the account is pretty straightforward.  You do need to get a Federal EIN and State account numbers but they provide instruction on that and it really wasn't hard at all.  If you go through an agency you will be paying the agency on top of your nanny and that can be a lot.  There are so many qualified nannies advertising on BPN that an agency is not really necessary.  You will save money and your nanny will make more money without the middleman imho.  Good luck!

Unless you're a CPA or finance whiz, get an agency. It's worth the peace of mind. There a ton of forms to do, and you don't want to do it all on your own.

I like Poppins Payroll since they help set up the employer IDs/handle taxes for me and send a summary at the end of every quarter and every year for your accountant or for you to do your taxes with. 

They estimate it's 60 hours of work to do it on your own every year to comply with all the paperwork://www.poppinspayroll.com/nanny-taxes-california

Message me your email if you want me to refer you - they had a deal for a month of free payroll ($49 value) to "refer a friend" - https://www.facebook.com/Poppinspayroll/posts/here-at-poppins-we-let-our-clients-do-the-talking-and-we-love-hearing-from-them-/1673924946148114/

Note that you will also need to get Workers' Comp insurance, which is in addition to the payroll service ($500-1000+ a year depending on part time/full time etc). 

In my experience the majority of nannies in the Bay Area prefer to be paid under the table (cash), so if that is something that could work for you and your family, you’d avoid a lot of hassle and likely have many more nannies willing to work for you. Some families want or need to pay above board, for personal or professional reasons, but it can really limit your options. In my experience the vast majority of families here pay under the table.

If you do opt to pay above board, you’ll have to register with the state as a household employer, and then there are a number of apps out there that can help you track payroll (I think the one we used years ago was called NannyPay? Not sure if it’s still out there). If I remember correctly we really just used the app to calculate withholding correctly and generate tax statements for both our nanny and ourselves, and then just paid her via personal check. It was honestly quite a headache on top of everything else that goes along with being a working parent. I didn’t consider an agency as we were trying to keep costs down, so can’t speak to what they offer. Good luck!

We used Poppins Payroll. My husband handled the logistics of it, but i know it was relatively easy for him to set up and manage.