If you employ someone to work in your home (nanny, housekeeper, caregiver, etc.), you may be responsible for payroll taxes, commonly called the "nanny tax." Many families don't realize they have this obligation, which can lead to penalties and interest. This guide explains everything you need to know about household employee taxes and how to comply.
Table of Contents
- What Is the Nanny Tax?
- Who Is a Household Employee?
- When You Must Pay Nanny Tax
- What Taxes You Must Pay
- Social Security and Medicare Taxes
- Federal Unemployment Tax (FUTA)
- State Unemployment Tax (SUTA)
- Income Tax Withholding
- How to Pay Nanny Tax
- Record Keeping Requirements
- Common Mistakes
- Special Situations
- Frequently Asked Questions
- Bottom Line
What Is the Nanny Tax?
The "nanny tax" refers to payroll taxes you must pay if you employ someone to work in your home. It's not a separate tax, but rather your obligation to pay Social Security, Medicare, and unemployment taxes for household employees.
Key Facts
- Applies to household employees: Nannies, housekeepers, caregivers, etc.
- Not just nannies: Applies to any household employee
- Payroll taxes: Social Security, Medicare, unemployment
- Your responsibility: As the employer, you must pay and report
Why It Matters
- Legal requirement: You must comply with tax laws
- Penalties: Failure to pay can result in penalties and interest
- Employee benefits: Ensures employee gets Social Security credits
- Professional: Proper handling protects you and your employee
Who Is a Household Employee?
A household employee is someone you hire to work in your home.
Qualifying Household Employees
✅ Nannies: Childcare providers ✅ Housekeepers: Cleaning and household maintenance ✅ Caregivers: For elderly or disabled family members ✅ Gardeners: If they work regularly in your home ✅ Cooks: Personal chefs ✅ Other domestic workers: Anyone working in your home
Who Is NOT a Household Employee
❌ Independent contractors: If they work for multiple clients, have their own business ❌ Agencies: If you pay an agency (they're the employer) ❌ Spouse: Your spouse is not a household employee ❌ Your child under 21: Your own child is not a household employee ❌ Parent: Your parent is generally not a household employee (unless special circumstances)
Employee vs. Independent Contractor
Employee characteristics:
- You control when and how they work
- You provide tools and equipment
- They work only for you
- You set the schedule
Independent contractor characteristics:
- They work for multiple clients
- They have their own business
- They set their own schedule
- They provide their own tools
Key Point: If you control how, when, and where they work, they're likely an employee, not an independent contractor.
When You Must Pay Nanny Tax
You must pay nanny tax if you pay a household employee above certain thresholds.
2026 Thresholds
- Social Security/Medicare: If you pay $2,700 or more in 2026
- Federal Unemployment (FUTA): If you pay $1,000 or more in any calendar quarter
- State Unemployment: Varies by state (check your state)
Important Notes
- Cash or check: Applies regardless of how you pay
- Per employee: Calculate for each employee separately
- Cumulative: Track total payments throughout the year
- Once you exceed: You must pay for the entire year (not just amount above threshold)
Example: You pay a nanny $500 per week ($26,000 per year)
- Exceeds $2,700: ✅ Must pay Social Security/Medicare
- Exceeds $1,000 per quarter: ✅ Must pay FUTA
- Must comply: With all nanny tax requirements
What Taxes You Must Pay
As an employer of household employees, you must pay several taxes:
1. Social Security Tax
- Rate: 6.2% of wages (up to wage base)
- 2026 wage base: $168,600
- Your share: 6.2% (employee also pays 6.2%)
2. Medicare Tax
- Rate: 1.45% of all wages (no wage base limit)
- Your share: 1.45% (employee also pays 1.45%)
- Additional Medicare: 0.9% on wages above $200,000 (employee only)
3. Federal Unemployment Tax (FUTA)
- Rate: 0.6% of first $7,000 of wages (2026)
- Your share: 100% (employee doesn't pay)
- Maximum per employee: $42 per year
4. State Unemployment Tax (SUTA)
- Varies by state: Check your state's requirements
- Your share: 100% (employee doesn't pay)
- Rates vary: Typically 1-5% of wages
5. Income Tax Withholding (Optional)
- Not required: You don't have to withhold income tax
- Can choose: Employee can request withholding
- If withholding: Must remit to IRS
Social Security and Medicare Taxes
These are the most common nanny tax obligations.
How Much You Pay
If you pay $2,700 or more in 2026:
- Social Security: 6.2% of wages (up to $168,600)
- Medicare: 1.45% of all wages
- Your share: 7.65% total (6.2% + 1.45%)
- Employee share: Also 7.65% (you can pay this for them or withhold)
Example Calculation
You pay nanny $30,000 per year:
- Social Security: $30,000 × 6.2% = $1,860 (your share)
- Medicare: $30,000 × 1.45% = $435 (your share)
- Your total: $2,295
- Employee share: Also $2,295 (can pay for them or withhold)
Total Social Security/Medicare: $4,590 ($2,295 your share + $2,295 employee share)
Who Pays What
- You pay: Your share (7.65%) - required
- Employee pays: Their share (7.65%) - you can pay for them or withhold from wages
- If you pay employee share: It's additional compensation (taxable to them)
Federal Unemployment Tax (FUTA)
FUTA is required if you pay $1,000 or more in any calendar quarter.
2026 FUTA Rates
- Rate: 0.6% of first $7,000 of wages per employee
- Maximum per employee: $42 per year
- Your responsibility: 100% (employee doesn't pay)
Example Calculation
You pay nanny $30,000 per year:
- FUTA base: $7,000 (first $7,000 of wages)
- FUTA tax: $7,000 × 0.6% = $42
- Maximum: $42 (even if you pay more than $7,000)
When You Pay
- Quarterly: Pay quarterly if you exceed threshold
- Annual: Can pay annually if prefer
- Due dates: Check IRS schedule
State Unemployment Tax (SUTA)
State unemployment tax requirements vary by state.
General Information
- Varies by state: Each state has different rules
- Rates vary: Typically 1-5% of wages
- Wage base: Varies by state (often $7,000-$15,000)
- Your responsibility: 100% (employee doesn't pay)
How to Find Your State Requirements
- State unemployment agency: Contact your state's unemployment office
- Online resources: Check state websites
- Tax professional: Consult with tax advisor
Important: You must register with your state and pay SUTA if required.
Try the tool
Income Tax Withholding
Income tax withholding is optional for household employees.
Your Options
Option 1: Don't Withhold
- Employee responsible for their own income taxes
- They may need to make estimated tax payments
- Simpler for you
Option 2: Withhold at Employee's Request
- Employee can ask you to withhold
- You must remit to IRS
- Use Form W-4 to determine amount
If You Withhold
- Get Form W-4: From employee
- Calculate withholding: Use IRS tables or calculator
- Remit to IRS: With other payroll taxes
- Issue W-2: At year-end
How to Pay Nanny Tax
Here's how to comply with nanny tax requirements:
Step 1: Get an EIN
- Employer Identification Number: Get from IRS (free)
- Apply online: IRS website
- Keep it: You'll use it for all payroll tax filings
Step 2: Register With State
- State unemployment: Register with your state
- Get state ID: You'll need it for state filings
- Check requirements: Each state is different
Step 3: Calculate Taxes
- Track wages: Keep records of all payments
- Calculate taxes: Social Security, Medicare, FUTA, SUTA
- Quarterly or annual: Determine your payment schedule
Step 4: Pay Taxes
- Schedule SE: Use Schedule H (Form 1040) for household employees
- Pay with return: Can pay with your tax return
- Or quarterly: Can pay quarterly if prefer
Step 5: Issue W-2
- At year-end: Issue Form W-2 to employee
- By January 31: Must provide to employee
- File with SSA: File Copy A with Social Security Administration
Record Keeping Requirements
You must keep detailed records for household employees.
Required Records
- Employee information: Name, address, SSN
- Wages paid: Date and amount of each payment
- Taxes paid: Records of all tax payments
- Forms filed: Copies of all forms (W-2, Schedule H, etc.)
- Retention: Keep for at least 4 years
Best Practices
- Use payroll software: Simplifies calculations and record keeping
- Keep separate records: For each employee
- Document everything: Payments, taxes, forms
- Backup records: Keep copies in safe place
Common Mistakes
Mistake 1: Not Realizing You Have Household Employees
Problem: Thinking nanny is independent contractor Result: Not paying required taxes, penalties Solution: Understand employee vs. contractor distinction
Mistake 2: Not Paying Because Amount Is Small
Problem: Thinking small amounts don't require compliance Result: Penalties when you exceed thresholds Solution: Track all payments, comply when you exceed thresholds
Mistake 3: Not Getting EIN
Problem: Using your SSN for payroll taxes Result: Privacy concerns, complications Solution: Get EIN from IRS (free, easy)
Mistake 4: Not Issuing W-2
Problem: Not providing W-2 to employee Result: Employee can't file taxes, penalties for you Solution: Issue W-2 by January 31
Mistake 5: Not Paying State Taxes
Problem: Only paying federal taxes Result: State penalties and interest Solution: Check state requirements, pay SUTA if required
Special Situations
Paying Through an Agency
- Agency is employer: If you pay an agency, they're the employer
- You're not responsible: For nanny tax if paying agency
- Check contract: Understand who is the employer
Au Pairs
- Special program: Au pair programs may have different rules
- Check program: Understand tax obligations
- May be different: From regular nanny tax
Family Members
- Spouse: Not a household employee
- Your child under 21: Not a household employee
- Parent: Generally not (unless special circumstances)
- Other relatives: May be household employees if meet definition
Frequently Asked Questions
Do I have to pay nanny tax if I pay less than $2,700?
No. You only need to pay Social Security/Medicare taxes if you pay $2,700 or more in a year. However, you may still need to pay FUTA if you pay $1,000 or more in a quarter.
Can I pay the employee's share of Social Security/Medicare?
Yes, you can pay the employee's share. However, if you do, it's considered additional taxable compensation to the employee.
Do I need to withhold income tax?
No, income tax withholding is optional. The employee can request it, but you're not required to withhold unless they ask.
What if I pay through an agency?
If you pay an agency (not the employee directly), the agency is typically the employer and responsible for payroll taxes. You're not responsible for nanny tax.
How do I get an EIN?
You can get an EIN for free from the IRS website. It takes just a few minutes to apply online.
When do I pay the taxes?
You can pay nanny taxes with your annual tax return using Schedule H, or you can pay quarterly if you prefer.
Do I need to issue a W-2?
Yes, if you pay $2,700 or more, you must issue a Form W-2 to the employee by January 31 of the following year.
What if I don't pay nanny tax?
Failure to pay nanny tax can result in penalties, interest, and potential legal issues. It's important to comply with all requirements.
Bottom Line
If you employ household workers, you may be responsible for nanny tax:
✅ Social Security/Medicare: If you pay $2,700+ per year (7.65% of wages) ✅ FUTA: If you pay $1,000+ in any quarter (0.6% of first $7,000) ✅ SUTA: Varies by state (check your state requirements) ✅ Income tax withholding: Optional (at employee's request) ✅ W-2 required: Must issue if you pay $2,700+
Key Requirements:
- Get EIN from IRS
- Register with state (if required)
- Track all wages paid
- Calculate and pay taxes
- Issue W-2 at year-end
- Keep detailed records
Action Items:
- Determine if you have household employees
- Track all wages paid throughout the year
- Get EIN if you don't have one
- Register with state unemployment agency
- Calculate taxes (Social Security, Medicare, FUTA, SUTA)
- Pay taxes (with return or quarterly)
- Issue W-2 to employee by January 31
- Keep detailed records for at least 4 years
Remember: The nanny tax is a legal requirement, not optional. Failure to comply can result in significant penalties and interest. Many families don't realize they have this obligation, but it's important to understand and comply. If you're unsure, consult with a tax professional to ensure you're handling everything correctly.
