Household employers must pay Social Security, Medicare, and often federal and state unemployment taxes when they pay a nanny or other household worker $2,800 or more in 2026 wages, then report those wages on a W-2 and file Schedule H with their personal tax return. These rules apply to nannies, senior caregivers, housekeepers, and private cooks, not to independent contractors who control their own schedule and bring their own tools.
Key Takeaway: If you pay a household worker cash wages above the annual threshold, you owe nanny taxes and must issue a W-2 by January 31, 2027. Skipping this step can trigger IRS penalties and back taxes with interest.
What It Is
The nanny tax is the common name for the Social Security, Medicare, and unemployment taxes that household employers owe when they pay a worker in their home. The IRS calls this set of obligations household employment tax, explained in Publication 926, the Household Employer’s Tax Guide. It applies whether you hire a nanny, housekeeper, private nurse, or gardener who works under your direction. If you are unsure whether your situation counts, see our guide on understanding the nanny tax for more examples.
Household employment tax covers three main pieces. FICA tax funds Social Security and Medicare, split evenly between you and your employee. FUTA, the federal unemployment tax, is paid only by you as the employer. Many states also charge their own unemployment tax on top of the federal amount.
You report these taxes once a year on Schedule H, which attaches to your Form 1040. You also give your worker a W-2 each January so they can file their own tax return. This differs from hiring a 1099 contractor, where you report payments on a 1099-NEC instead and skip payroll tax withholding entirely.
Many families assume paying a nanny in cash avoids these rules. It does not. Back taxes plus penalties often cost more than staying compliant from the start.
Who It Applies To
The nanny tax applies to anyone who pays a household worker $2,800 or more in a calendar year, the 2026 threshold filed in the 2027 season. This threshold applies per employee, so paying two part-time babysitters $1,500 each does not trigger nanny tax on its own.
The rules cover more than nannies. Housekeepers, private chefs, home health aides, gardeners, and drivers who work in your home under your direction all count as household employees if you control what work gets done and how it happens. A worker who sets their own hours, brings their own supplies, and serves multiple clients usually qualifies as an independent contractor instead.
Age matters too. Wages paid to your spouse, your child under 21, your parent, or an employee under 18 whose main occupation is not household work are generally exempt from Social Security and Medicare tax, even above the threshold. A teenager babysitting occasionally while in high school likely falls outside these rules.
Families who use a nanny share, where one caregiver watches children from two or more households, also owe nanny tax. Each family that pays the caregiver directly must track their own share of wages against the threshold.
Requirements
Once you cross the wage threshold, you take on real payroll duties. Start by getting an Employer Identification Number from the IRS, since you cannot use your Social Security number to report household employment tax.
You must withhold your employee’s share of Social Security and Medicare tax from each paycheck, or agree to cover it yourself as an added benefit. You also pay your own matching share as the employer. Together, this FICA tax equals 15.3% of wages, typically split so each party pays 7.65%.
Next, check your FUTA obligation. You owe federal unemployment tax if you paid any household employee $1,000 or more in a calendar quarter. This tax is 6% on the first $7,000 of wages per employee, though credits for state unemployment tax paid on time often reduce your effective rate to 0.6%.
Most states also require unemployment insurance registration and quarterly wage reports. Check your state labor department, since rules and thresholds vary from state to state.
At year-end, prepare a W-2 for your employee showing wages and taxes withheld. Send Copy B to your worker and file Copy A with the Social Security Administration by January 31, 2027. Then complete Schedule H and attach it to your Form 1040, reporting the total household employment tax you owe.
Many families make estimated tax payments throughout the year, since nanny tax due at filing time can create a large, unexpected bill otherwise.
Common Mistakes
The most frequent mistake is misclassifying a nanny as a 1099 contractor to avoid payroll tax. The IRS applies a behavioral and financial control test, not a label you choose. If you set the schedule and direct daily tasks, your worker is almost certainly an employee under the law.
Another common error is ignoring the $2,800 threshold until tax season arrives, leaving no time to register for an EIN or set up withholding. Waiting until January to address a full year of unpaid taxes creates unnecessary stress and increases the odds of a filing mistake.
Some families forget that FUTA has its own separate $1,000-per-quarter trigger, distinct from the $2,800 annual Social Security and Medicare threshold. You can owe unemployment tax even in a year when total wages fall just under the main threshold.
Paying an employee entirely in cash without records is another costly habit. Without pay stubs or a wage log, you cannot accurately complete a W-2 or Schedule H, and you lose your defense if the IRS questions your filings.
Many employers skip state-level registration entirely, assuming federal filing covers everything. State unemployment insurance and, in some cases, state income tax withholding require their own registration and reporting.
Best Practices
Register for household employer status as soon as you know you will pay a worker above the threshold. This gives you time to set up payroll correctly.
Keep a simple, consistent pay record for every payment, whether by check, direct deposit, or app transfer. Note gross wages, taxes withheld, and net pay for each pay period, and keep these records for at least four years.
Set aside money for taxes throughout the year instead of treating nanny tax as a once-a-year surprise. Many families increase their own paycheck withholding at work to cover the extra tax owed on Schedule H.
Talk with your nanny early about how pay will work. Explain that a portion of gross pay funds Social Security and Medicare, and agree in writing on the wage structure before the first payment goes out.
Review your state’s household employer rules once a year, since thresholds and tax rates change.
How WageFiling Helps
Filing an accurate W-2 for a household employee does not require expensive payroll software built for large companies. WageFiling gives household employers a direct, affordable way to prepare and file Form W-2 online without complicated corporate payroll menus.
Our platform walks you through entering your nanny’s wage and withholding information step by step, then checks the data for common errors before submission. This reduces the risk of typos that could trigger a mismatch notice from the Social Security Administration.
You can generate Copy B for your employee and file Copy A electronically with the SSA directly through our system, meeting the January 31 deadline without printing and mailing paper forms. Filed forms stay organized in your account for future reference.
WageFiling also supports households that hire multiple caregivers or switch nannies mid-year, letting you manage more than one W-2 filing from a single account.
Conclusion
Paying a nanny or other household worker comes with real tax responsibilities once you cross the wage threshold. You must withhold and pay Social Security and Medicare tax, address federal and often state unemployment tax, and issue a W-2 to your employee by January 31, 2027.
Treating these steps as routine, rather than optional, protects your family from IRS penalties, back taxes, and interest. Set up good records early, communicate clearly with your worker, and use a filing tool built for the job.
WageFiling makes it simple to prepare and submit an accurate W-2 for your household employee, so you can focus on your family instead of payroll paperwork. Filing correctly the first time saves money and stress down the road.
Frequently Asked Questions
Do I owe nanny tax if I pay my babysitter less than $2,800 a year?
No. If total wages to one household employee stay under $2,800 for the 2026 tax year, you generally do not owe Social Security or Medicare tax on those payments. You may still owe federal unemployment tax if you paid $1,000 or more in any single calendar quarter, so check both thresholds separately.
Can I pay my nanny as a 1099 contractor instead of issuing a W-2?
Usually not. If you control the nanny’s schedule, tasks, and work location, the IRS classifies that worker as your employee, not an independent contractor. Misclassifying a household employee to avoid payroll tax can lead to back taxes, penalties, and interest once the IRS or the worker reports the error.
What happens if I do not report nanny tax and issue a W-2?
The IRS can assess back taxes, late payment penalties, and interest going back several years. Your nanny may also lose access to Social Security and Medicare credits tied to reported wages, and unreported income can create problems if they later apply for unemployment benefits or a mortgage.
Disclaimer: This article is for informational purposes only and should not be considered tax, legal, or accounting advice. Consult a qualified tax professional regarding your specific situation.
