A nanny share — one nanny caring for children from two families — is a smart way to get professional, in-home care at roughly half the cost. The care arrangement is shared; the taxes, though, are handled by each family separately. Get that one principle right and the rest is straightforward.

The golden rule: two employers, two payrolls

In the eyes of the IRS, a shared nanny has two household employers. Each family is its own employer for its portion of the wages, which means each family:

  • Gets its own EIN and registers with the state as needed.
  • Runs its own payroll for its share of the hours and pay.
  • Withholds and pays its own FICA on the wages it pays.
  • Issues its own W-2 to the nanny at year-end and files its own Schedule H.
Don't have one family pay the nanny in full and 'settle up' privately with the other. That makes one family the sole employer of record and leaves the other's taxes — and tax breaks — in a mess.

Splitting the wages

Families usually split the nanny's rate — often each paying somewhat more than half of a solo rate, so the nanny earns more overall for caring for more children. However you divide it, each family runs payroll only on the portion it pays.

  • Agree on the total rate and how it's split between the families.
  • Track hours together, but calculate each family's pay on its own share.
  • Handle overtime thoughtfully — decide in advance how hours over 40 are attributed and shared.

The tax-break upside

Here's the pleasant surprise: because each family is a separate employer, each family gets the full childcare tax breaks on its own share of the wages. The Dependent Care FSA limit and the Child & Dependent Care Credit apply per family — the IRS doesn't split the caps across the share.

This only works if the nanny is paid on the books by each family. A W-2 with the family's EIN is what unlocks the FSA and the childcare credit.

Put it in a written agreement

A nanny share adds a third relationship — between the two families. A short written agreement covering the rate split, the schedule, whose home is used, holidays, and what happens if one family drops out prevents most headaches.

Each family can run its own House payroll for its share — separate W-2s, separate Schedule H figures, both free.

Set up my half

The bottom line

In a nanny share, share the care — not the payroll. Two employers, two EINs, two W-2s, two Schedule Hs, and each family claims the full childcare tax breaks on its own portion. Keep them separate and a share is one of the best deals in childcare.