Last updated: March 2026

Nanny payroll taxes: what you owe and how to pay

You owe nanny tax the moment you pay a household employee $2,700 or more in a calendar year. That threshold catches most families off guard because it applies retroactively. Pay your nanny $2,699 and you owe nothing. Pay her $2,700 and you owe Social Security and Medicare on the entire amount from dollar one, not just the $100 over the line. I've helped dozens of families sort this out after the fact, and the penalties for late filing are always worse than the taxes would have been. IRS Publication 926 covers the full household employer tax obligation. If you want to know how much nanny tax you owe for 2026, the answer depends on total wages, your state, and whether you have been withholding all year or are catching up.

The $2,700 threshold is the most expensive number most families learn about a year too late.

Who counts as a household employee

A household employee is someone who works in your home and whose work you control. Nannies, housekeepers, private nurses, senior caregivers, cooks, and gardeners all qualify. The IRS test is straightforward: if you decide what work gets done and how it gets done, that person is your employee. The tradeoff families face is classification. Paying a nanny as an independent contractor avoids the tax paperwork, but it's illegal if you control their schedule, duties, and methods. The IRS audits household employment specifically, and the misclassification penalty includes back taxes, the employee's share that should have been withheld, and a 100% penalty on top.

When this is wrong: the nanny works for a placement agency that controls scheduling and pay. In that case, the agency is the employer, not you. When this is also wrong: you hire someone through Care.com or a similar platform. The platform is a marketplace, not an agency. You're still the employer.

What taxes you owe

Nanny payroll taxes have four components. Employer FICA is 7.65% of wages (6.2% Social Security plus 1.45% Medicare). You also must withhold the employee's 7.65% share from each paycheck. FUTA (federal unemployment) is 6% on the first $7,000 of wages, reduced to 0.6% in most states through the FUTA credit. State unemployment tax (SUTA) rates vary, typically 1% to 5% on the first $7,000 to $40,000 of wages depending on your state. Federal income tax withholding is optional for household employees. The nanny can request it, and you should offer it, but it's not required.

Here's what the math looks like. A nanny earning $600 per week ($31,200 per year) costs the household employer $2,386.80 in employer FICA (7.65% of $31,200), roughly $187 in FUTA (0.6% of $7,000), and $200 to $800 in SUTA depending on your state. Total employer tax obligation: approximately $2,774 to $3,374. The nanny's share of FICA ($2,386.80) should be withheld from paychecks throughout the year. Skip the withholding and you're writing a check for both shares in April.

When this is wrong: you pay your nanny less than $2,700 in a calendar year. No nanny tax owed. When this is also wrong: your nanny is under 18 and household employment is not their primary occupation. A high school student babysitting after school is exempt from FICA regardless of how much you pay them. The exemption ends the day they turn 18 or the day domestic work becomes their primary job.

How to file: Schedule H

Household employer taxes are reported on Schedule H, which attaches to your personal Form 1040. You don't file quarterly 941s like a business. You file once a year with your tax return. The tradeoff is simplicity versus cash flow. Filing annually means the full tax bill hits in April. Most household employers either increase their own W-2 withholding at their day job (by adjusting their W-4) or make quarterly estimated tax payments to cover the household employment liability. The IRS doesn't care which method you use, but they do assess penalties if you owe more than $1,000 at filing time without sufficient withholding or estimated payments.

The April surprise is the most predictable financial shock in household employment, and it happens to thousands of families every year.

You must also issue a W-2 to your nanny by January 31 and file Copy A with the Social Security Administration. A nanny W-2 looks like any other W-2 except Box 2 (federal income tax withheld) may be zero if the nanny didn't request withholding. State requirements vary. Some states require separate household employer registration and quarterly wage reporting. California, New York, and Illinois are the strictest.

Common mistakes

Paying cash with no records. This is the most common mistake and the most expensive to fix. Back taxes, penalties, and the nanny's share that was never withheld all fall on the employer. There's no statute of limitations on unfiled returns.

Treating the nanny as a 1099 contractor. The IRS has a specific enforcement program for household employer misclassification. If audited, you owe back taxes plus the employee's share plus penalties. The nanny payroll service costs $50 to $75 per month. The misclassification penalty on a $30,000 annual salary runs $5,000 to $8,000. The math is not close.

Forgetting state unemployment registration. Most states require household employers to register for a state unemployment account within 10 to 30 days of the first pay date. Miss the deadline and you owe the tax retroactively plus a late registration penalty. When this is wrong: you live in a state with no income tax and assume that means no state payroll obligations. States without income tax (Texas, Florida, Washington) still require SUTA registration for household employers.

Not adjusting for the annual threshold change. The $2,700 threshold adjusts for inflation. It was $2,600 in 2023, $2,700 in 2024. If you're paying near the threshold, a $100 change in the annual limit can make the difference between owing nothing and owing the full year's taxes retroactively. Check the threshold every January.

DIY versus a nanny payroll service

A nanny payroll service (SurePayroll, GTM Payroll, HomePay, Poppins Payroll) costs $500 to $900 per year. They calculate withholding, make tax deposits, file Schedule H, handle state registrations, and issue the W-2. Doing it yourself on Schedule H costs nothing but requires tracking every payment, calculating FICA and SUTA, making timely deposits, registering with your state, and filing the W-2 correctly.

The misclassification penalty on a $30,000 salary runs higher than a decade of nanny payroll service fees.

The tradeoff is clear: $50 to $75 per month buys you certainty that the taxes are correct and filed on time. For a family already managing two careers and childcare, that certainty is worth more than the fee. Some general payroll providers like Gusto and SurePayroll also handle household payroll if you want a single platform for a family with both a business and a nanny.

What to do next

If you've been paying a nanny without withholding taxes, fix it now rather than waiting for the end of the year. Start withholding FICA from the next paycheck. Register for a state unemployment account if you haven't already. Increase your own W-4 withholding to cover the employer share. How to pay a nanny legally walks through the full setup from first paycheck through year-end filing. Babysitter taxes clarifies the under-18 exemption and the line between a babysitter and a nanny. For an overview of all household employer obligations including church payroll and clergy payroll, start at the household employer hub.

Written by a Certified Payroll Professional with 30 years of experience.

This is not legal or financial advice. Consult a qualified professional for your specific situation.