If you pay someone to care for your children in your home, the IRS considers you a household employer — and your nanny a household employee. That comes with a set of tax responsibilities people casually call the nanny tax. It sounds intimidating. It really isn't, once you see the whole picture.

Read this once and you'll understand your obligations better than most families who are paying a service to handle them.

1. What is the 'nanny tax,' exactly?

It's not a single tax. It's shorthand for the payroll taxes and reporting that apply when you employ someone in your home — a nanny, but also a housekeeper, senior caregiver, or private cook. The core pieces are Social Security and Medicare (FICA), federal and state unemployment (FUTA/SUTA), and income-tax withholding if you and your nanny agree to it.

The nanny tax applies to household employees. A truly independent contractor — say, an occasional babysitter who sets their own terms — is different. But a regular nanny is almost always a W-2 employee, not a contractor.

2. When does it kick in?

There's a dollar threshold. If you pay a household employee more than a set amount in cash wages during the year ($3,000 for 2026 — the IRS adjusts this figure annually, so check the current number), you owe Social Security and Medicare taxes on those wages. There's a separate threshold for federal unemployment tax, triggered when you pay $1,000 or more in any calendar quarter.

  • FICA (Social Security + Medicare): owed once you cross the annual wage threshold.
  • FUTA (federal unemployment): owed once you pay $1,000+ in a single quarter.
  • SUTA (state unemployment): rules and rates vary by state — most track a similar quarterly trigger.
  • Income tax withholding: optional, but many families do it so their nanny isn't hit with a big bill.

3. Who pays what?

FICA is split between you and your nanny. The total is 15.3% of wages — 7.65% is the employer's share (yours), and 7.65% is the employee's share, which you withhold from their pay. Unemployment taxes (FUTA and SUTA) are paid entirely by you, the employer — you never withhold those from your nanny.

A common courtesy: some families choose to cover the employee's share of FICA too, effectively giving the nanny a raise. That's your call — just remember that covering it is itself treated as additional wages.

4. The forms you'll touch

Household payroll generates a predictable set of documents across the year. None of them are hard on their own; the trick is keeping the numbers consistent.

  • Form I-9 — confirm your nanny is authorized to work, on their first day.
  • Form W-4 — your nanny fills this out so you know how much income tax to withhold.
  • Pay stubs — every pay period, showing gross, taxes, and net.
  • Form W-2 & W-3 — the year-end wage statement for your nanny (and its transmittal to the SSA).
  • Schedule H — filed with your personal Form 1040 to report and settle the household employment taxes.

House computes every one of these figures for you and generates the forms — free, with no $600-a-year subscription.

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5. How families usually get it wrong

  • Paying under the table. Tempting, but it exposes you to back taxes and penalties — and leaves your nanny without a work history or Social Security credits.
  • Issuing a 1099. Treating a nanny as a contractor is the single most common misclassification, and the IRS position is clear: a nanny is an employee.
  • Forgetting the estimated payments. Household employment tax is settled on your 1040, so it helps to set money aside quarterly instead of owing it all in April.

6. The bottom line

The nanny tax is really just payroll, at household scale: withhold correctly, set aside the employer taxes, hand over pay stubs, and file a W-2 and Schedule H at year-end. Do that and you've protected yourself, done right by your nanny, and kept the money a payroll service would have charged you.