If you hire a nanny, babysitter, or other household employee and pay them more than a certain amount in a year, you become a "household employer" in the eyes of the IRS. This status comes with legal obligations: you must withhold and pay Social Security and Medicare taxes, pay federal and state unemployment taxes, and issue a W-2 at the end of the year.

Many families who hire nannies are unaware of these obligations or choose to ignore them, often paying their nanny "under the table." This practice is illegal and carries significant risks, including back taxes, penalties, interest, and the loss of eligibility for the Child and Dependent Care Credit. In 2026, the IRS continues to invest in enforcement and education around household employment taxes, making compliance more important than ever.

This guide provides a complete overview of nanny taxes for household employers. It covers every tax you need to pay, the wage thresholds that trigger your obligations, step-by-step filing instructions, and tips for staying compliant. Use our Nanny Cost Calculator to see the full cost of hiring a nanny, including all employer taxes.

Do You Have a Household Employee?

The first question many families ask is: "Does my nanny count as a household employee?" According to the IRS, you have a household employee if you hire someone to perform work in or around your home and you have the right to control what work is done and how it is done. This applies to nannies, babysitters, au pairs, housekeepers, gardeners, and personal care aides.

Key factors that indicate an employer-employee relationship (rather than independent contractor status):

  • You provide the tools, equipment, and supplies needed to do the work
  • You set the work schedule and hours
  • You provide training or instruction on how to do the work
  • You have the right to supervise and direct the work
  • The worker provides services only to you (not to multiple families)

If you found your nanny through an agency, the agency may be the employer instead. But if you hire a nanny directly and pay them personally, you are almost certainly the employer. Nannies are never classified as independent contractors under IRS rules — an important distinction that many families get wrong.

2026 Wage Thresholds

Your tax obligations depend on how much you pay your nanny. Here are the key thresholds for 2026:

  • $2,800 per year (approximate): The threshold for Social Security and Medicare (FICA) taxes. If you pay your nanny $2,800 or more in a calendar year, you must withhold and pay FICA taxes. This threshold is adjusted annually for inflation. For 2026, the exact figure has not been released, but it is expected to be around $2,800.
  • $1,000 per quarter: The threshold for federal unemployment tax (FUTA). If you pay your nanny $1,000 or more in any calendar quarter, you must pay FUTA tax.
  • Varies by state: State unemployment tax (SUTA) thresholds vary. Most states require you to pay state UI tax once you pay the nanny $1,000–$2,000 in a quarter or $2,000–$5,000 in a year. Check your state's requirements.

If you pay your nanny less than these thresholds — for example, a once-a-week date-night babysitter earning $1,500 per year — you generally do not need to pay employment taxes, though you should still keep records. For any nanny or regular caregiver, however, you will almost certainly exceed the threshold.

Use our Nanny Cost Calculator for a complete breakdown of taxes based on your nanny's wages and your state.

Taxes You Must Pay as a Household Employer

Social Security and Medicare (FICA)

The Federal Insurance Contributions Act (FICA) requires both you and your nanny to contribute to Social Security and Medicare. Here is the breakdown:

  • Social Security: 12.4% total — 6.2% withheld from the nanny's wages + 6.2% paid by you as the employer
  • Medicare: 2.9% total — 1.45% withheld from the nanny's wages + 1.45% paid by you as the employer
  • Total FICA: 15.3% — 7.65% from the nanny, 7.65% from you

Your share of FICA (7.65%) is in addition to the nanny's gross wages. For example, if you pay your nanny $40,000 per year, your employer FICA cost is an additional $3,060. The nanny's share (also 7.65%) is withheld from her paycheck.

You must withhold your nanny's share from each paycheck and remit the full 15.3% to the IRS. You cannot simply pay the nanny's share for her without withholding it — that would make the payment additional taxable wages.

Federal Unemployment Tax (FUTA)

The Federal Unemployment Tax Act (FUTA) funds unemployment benefits for workers who lose their jobs. As a household employer, you must pay FUTA if you pay your nanny $1,000 or more in any calendar quarter.

The FUTA tax rate is 6.0% on the first $7,000 of wages per employee per year. However, you can claim a credit of up to 5.4% for paying state unemployment taxes on time, reducing your effective FUTA rate to 0.6%. At this rate, your maximum FUTA cost per nanny per year is just $42 ($7,000 x 0.6%). Unlike FICA, FUTA is paid entirely by you — it is not withheld from the nanny's wages.

State Unemployment Tax (SUTA)

Most states have their own unemployment insurance (UI) tax that you must pay as a household employer. State UI tax rates vary widely:

  • Wage base: States tax the first $7,000–$56,000+ of wages per employee per year. Common wage bases are $7,000, $9,000, $12,000, and $15,000.
  • Tax rate: New employer rates typically range from 2% to 5% of the taxable wage base. Experienced employer rates (based on claims history) can range from 0.5% to 8% or more.
  • Annual cost: For a nanny earning $40,000 per year in a state with a $12,000 wage base and a 3% rate, the annual SUTA cost is $360.

You must register with your state's unemployment agency, file quarterly wage reports, and pay SUTA taxes. Each state has its own process and deadlines.

Step-by-Step Filing Requirements

Step 1: Obtain an EIN

Before you start paying your nanny, you need an Employer Identification Number (EIN) from the IRS. You cannot use your Social Security number for household employment taxes. You can apply for an EIN online at IRS.gov — the application takes about 10 minutes and the number is issued immediately. You will also need to register with your state's tax agency for a state employer number.

Step 2: Withhold and Report FICA Taxes

Each pay period, you must withhold 7.65% from your nanny's gross wages for her share of FICA, and you must calculate and set aside your 7.65% employer share. You have two options for paying these taxes to the IRS:

  • Schedule H (Form 1040): Most household employers file Schedule H along with their annual personal tax return (Form 1040). You report all FICA, FUTA, and withheld income taxes on Schedule H, and the total is added to your income tax liability. No quarterly filing required — just one annual form due by April 15.
  • Quarterly estimated payments: If you prefer to pay throughout the year (to avoid a large lump sum at tax time), you can make quarterly estimated payments using Form 1040-ES.

Most families choose the Schedule H route for simplicity. However, if you also have a business or other self-employment income, you may need to use the quarterly estimated payment approach.

Step 3: Pay FUTA

FUTA tax is reported on Schedule H (Form 1040) along with FICA. The FUTA tax you owe for the year — typically $42 or less per nanny — is simply added to the total you report on Schedule H. No separate filing is needed.

Step 4: File and Pay State Unemployment Tax

Each state has its own process for registering as an employer, filing quarterly wage reports, and paying SUTA taxes. You must register with your state's Department of Labor or Workforce Agency. Quarterly wage reports typically include the name, SSN, and wages paid for each employee. Payments can usually be made online.

Step 5: Issue Form W-2

By January 31 of each year, you must provide your nanny with a Form W-2, Wage and Tax Statement, showing the total wages paid and taxes withheld during the previous year. You must also file a copy with the Social Security Administration (SSA) by January 31. You can file W-2s electronically through the SSA's Business Services Online portal or by mail using paper forms.

Unlike most businesses, household employers do not typically need to file Form 941 (quarterly payroll tax returns). Schedule H and the annual W-2 meet your federal filing obligations.

What Happens If You Do Not Comply?

Paying a nanny "under the table" and failing to comply with household employer tax obligations is a violation of federal and state law. The consequences can be serious:

  • Back taxes: The IRS can assess all unpaid FICA and FUTA taxes, plus interest dating back to when the taxes were originally due.
  • Penalties: Late filing, late payment, and failure to pay penalties can add 25–50% or more to the tax owed.
  • Loss of the Child and Dependent Care Credit: You cannot claim the Child and Dependent Care Credit for wages paid to a nanny unless you report those wages and pay the required taxes. For families with two children, losing the credit means forfeiting up to $2,100 per year.
  • Audit risk: The IRS has become more sophisticated at identifying household employers who are not paying taxes. Mismatched information returns and suspicious patterns in tax filings can trigger an audit.
  • State penalties: States can assess their own penalties for failure to pay state UI taxes, including fines and back assessments with interest.

The IRS also offers a Voluntary Classification Settlement Program (VCSP) for employers who have been misclassifying workers as independent contractors and want to come into compliance with reduced penalties. However, this program is designed for businesses, not households, so it is best to consult a tax professional if you need to correct past non-compliance.

Should You Use a Payroll Service?

Many families choose to use a nanny payroll service to handle the complexity of household employment taxes. Payroll services typically cost $30–$60 per month and handle:

  • Calculating paychecks with correct tax withholdings
  • Withholding and remitting FICA taxes
  • Filing Schedule H and preparing your year-end W-2
  • Calculating and paying state unemployment taxes
  • Filing state quarterly wage reports
  • Providing pay stubs for your records and your nanny's records

Popular nanny payroll services include NannyKeeper, Poppin Pay, Care.com HomePay, and SurePayroll Nanny. The cost is generally tax-deductible as part of your household employment expenses if you itemize deductions.

For families who are comfortable with paperwork and have a straightforward situation (one nanny, standard schedule, no complex benefits), managing taxes yourself using Schedule H can save the cost of a payroll service. For families who want peace of mind and minimal hassle, a payroll service is well worth the investment.

Additional Considerations

Workers' Compensation Insurance

While not required by federal law, several states require household employers to carry workers' compensation insurance. Even if it is not required in your state, it is strongly recommended — your homeowners insurance policy almost certainly excludes coverage for employee injuries. A workers' comp policy for a nanny typically costs 1–2% of gross wages, or about $400–$800 per year for a nanny earning $40,000.

Paid Time Off

There is no federal law requiring you to provide paid vacation, sick leave, or holidays to a household employee. However, offering paid time off is standard practice in the nanny industry and is essential for attracting and retaining quality caregivers. Typical arrangements include 1–2 weeks of paid vacation, 5–7 paid sick days, and 6–8 paid federal holidays per year.

Minimum Wage and Overtime

Your nanny must be paid at least the higher of the federal minimum wage ($7.25/hour) or your state's minimum wage. As of 2026, 30 states plus DC have minimum wages above the federal rate. Under the Fair Labor Standards Act (FLSA), nannies are entitled to overtime pay at 1.5 times their regular rate for hours worked over 40 in a workweek, unless your state has different overtime rules.

Health Insurance

Household employers are generally not required to provide health insurance, but some families choose to offer a health insurance stipend or contribute to a nanny's health insurance costs as a competitive benefit.

Use our Nanny Cost Calculator to estimate the full cost of hiring a nanny, including all employer taxes, workers' compensation, and paid time off. For more information on nanny taxes and household employment, see our FAQ or visit the IRS Household Employer page at IRS.gov.