Employer Guide
Nanny Tax 2026 — Complete Household Employee Tax Guide
The nanny tax applies when you pay a household employee $2,800 or more in 2025. As a household employer, you must withhold Social Security and Medicare taxes (7.65% each), pay federal unemployment tax (FUTA), and file Schedule H with your tax return. You must also provide a W-2 to your employee.
What Is the Nanny Tax?
The nanny tax refers to the federal employment taxes that household employers must pay when they hire domestic workers. Officially called household employment taxes, these include Social Security, Medicare, and federal unemployment (FUTA) taxes. The term "nanny tax" is commonly used because families who hire nannies are the most frequent household employers, but the rules apply equally to caregivers, housekeepers, maids, gardeners, and personal drivers.
The nanny tax is not a separate tax — it is the standard payroll tax system applied to domestic workers. As a household employer, you are responsible for paying your share of Social Security and Medicare taxes (7.65% of wages), withholding your employee's share (another 7.65%), and paying federal unemployment tax. These taxes are reported on Schedule H, filed annually with your personal Form 1040.
The IRS created the Schedule H system specifically to make it easier for household employers to comply. Unlike businesses that must file quarterly payroll returns (Form 941), household employers can settle all employment taxes once a year when they file their personal tax return. You do not need an employer identification number (EIN) for household employment — you can use your Social Security number.
Use our tax refund calculator to see how household employment taxes affect your overall tax situation and potential refund.
Household employees are legally entitled to the same Social Security, Medicare, and unemployment benefits as any other worker. Paying nanny taxes properly ensures your employee builds credits toward Social Security retirement benefits and Medicare coverage. It also protects you from IRS penalties, interest, and potential back-tax assessments if you are audited.
Who Is a Household Employee?
A household employee is someone you hire to perform domestic work in or around your home — but the key legal test is whether you control what work is done and how it is done. This is the same "common law" test the IRS uses for all employer-employee relationships. If you have the right to direct and control the worker, they are your household employee, not an independent contractor.
Household employees include the following types of workers when they work in your private home and you control their work:
- Nannies — Full-time or part-time childcare providers who work in your home under your direction.
- Babysitters — Regular sitters who care for your children in your home on a recurring basis (special rules apply to occasional sitters under age 18).
- Housekeepers and maids — Workers who clean your home, do laundry, and perform general housekeeping under your direction.
- Caregivers — Home health aides or personal care attendants who care for elderly or disabled family members in your home.
- Gardeners and landscapers — Workers who maintain your personal yard or garden when you direct their work.
- Personal drivers — Drivers who transport you or your family members in your private vehicle.
The IRS looks at factors such as whether you provide tools and equipment, whether you set the work schedule, whether you can fire the worker, and whether the worker's services are integrated into your household operations. If you answer yes to most of these, the worker is likely a household employee.
Who Is NOT a Household Employee
Not every domestic worker qualifies as a household employee. Some workers are independent contractors or fall under specific exemptions. Understanding the difference is critical because misclassifying an employee as an independent contractor can trigger back taxes, penalties, and interest.
The following workers are generally not considered household employees:
- Independent contractors — Workers who provide services through their own business, set their own schedule, use their own tools, and offer services to the general public. Examples include a lawn service company that sends different workers each week, a cleaning service that sets its own schedule and supplies, or a repair technician who brings their own tools.
- Occasional babysitters under age 18 — If the babysitter is under 18 and babysitting is not their primary occupation, they are exempt from Social Security and Medicare taxes. This covers typical teenage babysitters.
- Spouses and children — Work performed by your spouse or your child under age 21 is not subject to household employment taxes.
- Parents — Work performed by your parent in your home is generally exempt, unless you have children living with you and you are a widow or widower, or you are divorced and have children living with you.
- Agency employees — If you hire a worker through an agency that controls and pays the worker, the agency is the employer, not you.
Some household employers try to treat nannies as independent contractors and issue Form 1099-NEC instead of Form W-2. This is almost always incorrect under IRS rules. Household employees are legally employees, not contractors. The IRS actively audits household employer misclassification and can assess back taxes, penalties, and interest for several years.
2025 Wage Thresholds
The nanny tax rules include two key wage thresholds that determine your obligations as a household employer. These thresholds are based on cash wages — payments by cash, check, or electronic transfer. The value of food, lodging, or other non-cash benefits does not count toward the threshold.
| Tax Type | Wage Threshold | Trigger |
|---|---|---|
| Social Security & Medicare | $2,800 per year | Cash wages of $2,800 or more in any calendar year |
| FUTA (Federal Unemployment) | $1,000 per quarter | Cash wages of $1,000 or more in any calendar quarter |
The $2,800 threshold applies per household, not per employee. If you hire multiple household employees during the year and their combined cash wages total $2,800 or more, you must pay Social Security and Medicare taxes on each employee's wages (even if a single employee earned less than $2,800). However, the wages of your spouse, your child under 21, and your parent are generally excluded from this calculation.
The $1,000 per quarter threshold for FUTA is tested separately. If you pay a household employee $1,000 or more in cash wages in any calendar quarter of the current or prior year, you must pay FUTA tax on that employee's wages up to $7,000 per year.
For 2026, these thresholds may be adjusted for inflation. The IRS typically announces any changes in late October of the prior year. Check the IRS tax forms page for updates as they become available.
Withholding Rules for Household Employees
As a household employer, you are required to withhold the employee share of Social Security and Medicare taxes (7.65%) from your employee's wages — unless you choose to pay both shares yourself. If you decide to withhold from wages, you must have an agreement with your employee. You may not withhold without their knowledge or consent.
Federal income tax withholding for household employees is voluntary. Unlike regular employers, household employers are not required to withhold federal income tax from wages. If your employee wants you to withhold income tax, they must complete Form W-4 and give it to you. You then calculate withholding based on their W-4 selections and include the withheld amount with your tax payments.
How to Calculate Withholding
To calculate the employee's share of Social Security and Medicare taxes, multiply their gross cash wages by 7.65%. For example, if you pay your nanny $600 per week, the employee share is $600 × 7.65% = $45.90. You would withhold $45.90 from their pay and add your $45.90 employer share, for a total of $91.80 paid to the IRS for that week.
Paying Both Shares as the Employer
Many household employers choose to pay the entire 15.3% themselves rather than reducing their employee's take-home pay. This is perfectly legal and simplifies payroll. Your total cost is wages + 7.65% employer share + 7.65% employee share. You report the full 15.3% on Schedule H. Note that the employee share you pay on their behalf is not considered additional taxable wages.
Several companies specialize in household employer payroll, including HomePay by Care.com, Breedlove, SurePayroll, and Poppins Payroll. These services calculate withholding, prepare Schedule H, generate W-2s, and handle state registration. If you find the paperwork overwhelming, a payroll service typically costs $30-$60 per month and eliminates the compliance burden.
Federal Unemployment Tax (FUTA)
The Federal Unemployment Tax Act (FUTA) requires household employers to pay unemployment tax on wages paid to household employees. FUTA funds the federal-state unemployment compensation system that provides temporary income to workers who lose their jobs through no fault of their own.
FUTA applies if you pay $1,000 or more in cash wages to household employees in any calendar quarter in the current or prior year. If you cross this threshold, you must pay FUTA on the first $7,000 of wages paid to each employee per year.
The gross FUTA rate is 6.0% on the first $7,000 of wages, for a maximum gross tax of $420 per employee per year. However, most employers receive a state tax credit of up to 5.4%, reducing the net rate to just 0.6%. This means the typical net FUTA cost is $42 per employee per year (0.6% × $7,000).
To qualify for the full 5.4% credit, you must pay state unemployment tax (SUTA) on time and in full. If your state has borrowed from the federal unemployment fund and has not repaid the loan, the credit may be reduced. A few states are "credit reduction states" where the net FUTA rate exceeds 0.6%.
| Component | Rate | Amount (max) |
|---|---|---|
| Gross FUTA tax | 6.0% | $420 per employee |
| State tax credit (max) | -5.4% | -$378 per employee |
| Net FUTA (typical) | 0.6% | $42 per employee |
FUTA is an employer-only tax. You may not withhold FUTA from your employee's wages. It is entirely your cost as the household employer.
State Unemployment and New Hire Reporting
In addition to federal taxes, household employers must comply with state-level requirements. Every state has its own State Unemployment Insurance (SUI or SUTA) program, and most require household employers who pay above a certain threshold to register and pay state unemployment tax.
State unemployment tax rates vary widely depending on your state and your experience rating (how many former employees have filed unemployment claims against you). New employers typically pay rates from 2% to 4%, while experienced employers may pay anywhere from 0.5% to 8% or more. The state wage base also varies — some states cap SUTA at $7,000 (matching FUTA), while others have much higher caps like $40,000 or more.
New Hire Reporting
Federal law requires all employers, including household employers, to report newly hired and rehired employees to their state's New Hire Reporting Program within 20 days of the hire date. This program helps enforce child support orders and detect unemployment fraud. You must report the employee's name, address, Social Security number, and your employer details. Most states offer an online portal for new hire reporting that takes less than five minutes.
Worker's Compensation Insurance
Most states require household employers to carry worker's compensation insurance for domestic employees. Requirements vary by state — some require coverage if you pay above a specific wage threshold, while others require it for any employee regardless of hours. Contact your state's worker's compensation board to determine your obligations. Worker's compensation insurance for household employees is typically inexpensive, often $200-$500 per year.
State requirements for household employers vary significantly. California, New York, and Massachusetts have among the strictest household employer regulations, including paid family leave requirements. Texas and Florida have minimal state-level requirements. Always check with your state's department of labor and workforce agency for your specific obligations.
Form W-2 for Household Employees
If you pay a household employee $2,800 or more in cash wages in 2025, you must provide them with Form W-2 (Wage and Tax Statement) by January 31, 2026. This is the same form that any employer provides to any employee. The W-2 reports the employee's total wages, Social Security wages, Medicare wages, and any taxes withheld during the year.
You must also file Copy A of each Form W-2 with the Social Security Administration (SSA) by January 31, along with a Form W-3 (Transmittal of Wage and Tax Statements). This can be done electronically through the SSA's Business Services Online portal or by mailing paper forms.
How to Prepare W-2 for Household Employees
You have several options for preparing W-2 forms for household employees:
- IRS Schedule H instructions — The Schedule H instructions include step-by-step guidance for completing W-2 forms for household employees.
- Payroll services — If you use a household payroll service, they will prepare and file W-2s on your behalf.
- SSA Business Services Online — You can prepare, print, and file W-2s directly through the SSA's free online portal.
- Tax software — Many tax preparation programs can generate W-2s for household employees.
- Paper forms — You can order W-2 and W-3 forms from the IRS website or an office supply store.
Household employers often mistakenly issue a Form 1099-NEC instead of a Form W-2 to their nanny or housekeeper. This is incorrect — household employees are employees, not independent contractors. If you issue a 1099 to someone who is legally an employee, the IRS may reclassify the relationship and assess back taxes, penalties, and interest. Always use Form W-2 for household employees.
Schedule H — Filing Household Taxes
Schedule H (Form 1040): Household Employment Taxes is the form you file to report and pay nanny taxes. Unlike businesses that file quarterly payroll returns (Form 941), household employers report all employment taxes once a year on Schedule H, which you attach to your personal Form 1040 income tax return.
Schedule H is relatively simple. It collects the following information:
- Total cash wages paid to household employees
- Social Security and Medicare taxes (15.3% of cash wages up to the wage base)
- Federal income tax withheld (if any, by employee request)
- FUTA tax (6.0% on first $7,000 per employee, less state credit)
- Total household employment taxes due
The total tax from Schedule H is added to your income tax liability on Form 1040. If you file Schedule H with your return by April 15, you can include the household employment tax with your balance due or reduce your refund. You can also make estimated tax payments throughout the year to cover household employment taxes if you expect a large balance.
How to Pay Household Employment Taxes
There are several ways to pay the taxes reported on Schedule H:
- With your tax return — Include the Schedule H amount in your estimated tax payment or balance due with Form 1040.
- EFTPS — Enroll in the Electronic Federal Tax Payment System and pay household employment taxes separately throughout the year.
- Quarterly estimated tax — Include estimated household employment taxes in your quarterly estimated tax payments using Form 1040-ES.
- IRS Direct Pay — Make a one-time payment from your bank account without enrolling in any system.
If you wait until April 15 to pay all household employment taxes for the year and your total tax (income + household) exceeds $1,000, you may owe an estimated tax penalty. Consider making quarterly estimated payments or increasing your payroll withholding to cover the additional tax.
Use our estimated tax payments guide to learn how to calculate and make quarterly payments that include household employment taxes.
Tax Credits for Household Employment
Paying nanny taxes is not all bad news — you may qualify for valuable tax credits that offset some of the cost. The most significant is the Child and Dependent Care Credit, which can be worth up to $1,050 (for one qualifying dependent) or $2,100 (for two or more) for the 2025 tax year.
The Child and Dependent Care Credit allows you to claim a percentage of eligible childcare expenses — including wages paid to a nanny, babysitter, or daycare provider — against your federal income tax. To qualify, the care must be provided so you can work or look for work, and the child must be under age 13 (or a disabled dependent of any age).
For 2025, the maximum eligible expenses are $3,000 for one qualifying individual ($6,000 for two or more). The credit percentage ranges from 20% to 35% depending on your adjusted gross income. The credit is nonrefundable, meaning it can reduce your tax to zero but you will not receive any excess as a refund.
| AGI | Credit Percentage | Max Credit (1 child) | Max Credit (2+ children) |
|---|---|---|---|
| $15,000 or less | 35% | $1,050 | $2,100 |
| $15,001 - $43,000 | Sliding scale | Varies | Varies |
| $43,000+ | 20% | $600 | $1,200 |
To claim the credit, you must identify your caregiver on your tax return (name, address, and taxpayer identification number or Social Security number). This is another reason to pay your nanny legally — you need their information to claim the credit. Use our tax refund calculator to estimate how the Child and Dependent Care Credit affects your refund.
Additionally, if you offer health insurance to your household employee, you may be eligible for the Small Business Health Care Tax Credit if you meet certain requirements, though this credit is primarily designed for businesses with fewer than 25 full-time equivalent employees.
Examples at Different Wage Levels
Let's walk through several examples to show how nanny taxes work at different wage levels. These examples assume you pay a single household employee and you choose to pay the employee share of Social Security/Medicare yourself (not withholding from wages).
Example 1: Part-Time Nanny — $600 per month
Annual wages: $7,200 ($600 × 12 months)
Threshold test: $7,200 exceeds $2,800. Social Security/Medicare taxes apply.
Employer SS/Medicare (7.65%): $7,200 × 7.65% = $550.80
Employee SS/Medicare (7.65%): $7,200 × 7.65% = $550.80 (you pay this too)
Total SS/Medicare: $1,101.60
FUTA test: $600/month = $1,800/quarter, exceeds $1,000 threshold.
FUTA tax (0.6% net): $7,000 × 0.6% = $42.00
Total household employment taxes: $1,143.60
Example 2: Full-Time Nanny — $800 per week
Annual wages: $41,600 ($800 × 52 weeks)
Threshold test: Exceeds $2,800. All SS/Medicare rules apply.
Employer SS/Medicare (7.65%): $41,600 × 7.65% = $3,182.40
Employee SS/Medicare (7.65%): $41,600 × 7.65% = $3,182.40 (you pay)
Total SS/Medicare: $6,364.80
FUTA test: $800/week = $10,400/quarter, exceeds $1,000.
FUTA tax (0.6% net, capped at $7,000): $42.00
Total household employment taxes: $6,406.80
Example 3: Housekeeper — $150 per week, 10 hours
Annual wages: $7,800 ($150 × 52 weeks)
Threshold test: $7,800 exceeds $2,800. Taxes apply.
Employer SS/Medicare (7.65%): $7,800 × 7.65% = $596.70
Employee SS/Medicare (7.65%): $7,800 × 7.65% = $596.70 (you pay)
Total SS/Medicare: $1,193.40
FUTA test: $150/week = $1,950/quarter, exceeds $1,000.
FUTA tax (0.6% net): $42.00
Total household employment taxes: $1,235.40
Example 4: Below Threshold — $200 per month
Annual wages: $2,400 ($200 × 12 months)
Threshold test: $2,400 is below $2,800. No Social Security/Medicare taxes.
FUTA test: $200/month = $600/quarter, below $1,000. No FUTA.
Total household employment taxes: $0.00
In Example 2, if the full-time nanny cares for two children under 13, you could claim up to $1,200 in Child and Dependent Care Credit (assuming AGI over $43,000). This reduces your effective tax cost from $6,406.80 to $5,206.80 — a meaningful savings. Use our tax refund calculator to see how the credit affects your bottom line.
Frequently Asked Questions
As a tax content specialist, I verify every detail in this guide against IRS Publication 926 (Household Employer's Guide) and Schedule H instructions. Nanny taxes are one of the most overlooked tax obligations for families — many household employers do not realize they must pay and withhold payroll taxes until an IRS notice arrives. I update this guide annually to reflect the latest wage thresholds, tax rates, and state-level requirements.
— Lead Tax Content Strategist, TaxCalcHQ
Social Security and Medicare Taxes
Once the $2,800 cash wage threshold is met, you must pay Social Security and Medicare taxes on all cash wages you pay to your household employee — including the first $2,800. There is no "free" amount below the threshold. If you cross the threshold, the taxes apply retroactively to the first dollar of wages paid during the year.
The total Social Security and Medicare tax rate for household employees is 15.3%, which breaks down as follows:
The employer share (7.65%) comes out of your pocket as the household employer. You must pay this amount in addition to the wages you pay. The employee share (7.65%) can be withheld from your employee's wages, or you can choose to pay it yourself as a benefit to your employee. Either way, the total 15.3% must be paid to the IRS.
Unlike Social Security taxes for standard employees, household employee wages are not subject to the Social Security wage base limit of $176,100 (2025). The 12.4% Social Security portion applies to all cash wages, regardless of amount, when paid to a household employee. However, there is an additional Medicare tax of 0.9% that applies to employee wages above $200,000 (single), but only the employee share is subject to this surtax.