Anonymous wrote:If you paid her her full salary and stopped withholding taxes you wouldn't have this problem, and your nanny would probably be happier.

I don't think she would be happier. Either you are an above board nanny and employer or you are not. The two seem to find each other.

And thanks all for the responses!

Anonymous wrote:If you paid her her full salary and stopped withholding taxes you wouldn't have this problem, and your nanny would probably be happier.

True, but it would be illegal, and she wouldn't get social security benefits or (in our state) disability insurance. At any rate, that decision was made long ago and everyone is on board with it--the question was just how to cash out the vacation time in accordance with the law.

Anonymous wrote:If you paid her her full salary and stopped withholding taxes you wouldn't have this problem, and your nanny would probably be happier.

That's illegal. Of course some people do that, but not this OP clearly. (For which I commend her.)

If you paid her her full salary and stopped withholding taxes you wouldn't have this problem, and your nanny would probably be happier.

Yes, it's reportable as income. As long as you're reporting it the method (cash vs. check) doesn't matter.

Yes, of course. Just as if she had used it during the year, it is included in income.

That's correct. Check, and take taxes out.

OP again--okay, found a page on cashed out vacation time at end of employment. Sounds like it should be included in the final paycheck and reported as income for tax purposes. Sound right?

Our child is getting ready to head to preschool, and when we wrap up our time with our nanny, we will be paying out her vacation time. We pay over the table and vacation is paid out at end of employment per contract. Does this get paid in cash or check? When I do the last quarterly earnings report, does it include the payout? (I'm not clear if this is considered salary...?) Thanks for any advice!