Can You Pay a Nanny With a 1099?
Clarify if your nanny is an employee or contractor. Understand the tax responsibilities and compliance steps for household employers.
While many assume nannies, housekeepers, or other domestic workers can be paid as independent contractors using a Form 1099, the Internal Revenue Service (IRS) generally classifies them as employees. Correctly classifying a nanny helps household employers meet their tax obligations. Understanding the distinction between an employee and an independent contractor is the first step toward fulfilling household employer obligations.
Understanding Worker Classification for Nannies
The IRS determines worker classification based on the degree of control and independence in the working relationship. This involves assessing behavioral control, financial control, and the type of relationship. For household workers like nannies, these factors typically result in an employee classification.
Behavioral control assesses the employer’s right to direct and control the work. If an employer dictates a nanny’s hours, specific tasks, and methods for childcare or household duties, it indicates an employer-employee relationship. This includes setting schedules or requiring specific chores.
Financial control examines the employer’s control over the worker’s business aspects. Paying a regular wage, reimbursing expenses, or providing tools indicates an employee relationship. Independent contractors typically invest in their own equipment, cover their own expenses, and can realize a profit or loss.
The type of relationship considers how the worker and employer perceive their connection, including contracts and benefits. Nannies often have an ongoing relationship with a single family, characteristic of employment. Even if a nanny prefers independent contractor status or a Form 1099, IRS classification rules take precedence.
Federal Tax Obligations for Household Employers
Once a nanny is classified as an employee, household employers incur federal tax obligations. These primarily involve Social Security and Medicare taxes (FICA taxes) and Federal Unemployment Tax Act (FUTA) taxes.
For FICA taxes, both the employer and employee each pay 7.65% of the employee’s cash wages. This includes 6.2% for Social Security (up to an annual wage base limit) and 1.45% for Medicare (no wage base limit). For 2025, if you pay a household employee cash wages of $2,800 or more, you must withhold the employee’s share of FICA taxes and pay your matching share.
Household employers may also be responsible for FUTA taxes, which fund unemployment benefits. The FUTA tax rate is 6.0% on the first $7,000 of cash wages paid annually per employee. Employers can claim a credit of up to 5.4% for timely state unemployment contributions. This obligation applies if you pay total cash wages of $1,000 or more to all household employees in any calendar quarter during the current or prior year.
State-Specific Payroll and Tax Requirements
In addition to federal obligations, household employers have state-level payroll and tax responsibilities that vary by jurisdiction. These often include state unemployment insurance (SUI), state disability insurance (SDI), or workers’ compensation. Employers should consult their state’s labor department to understand specific obligations.
State unemployment insurance (SUI) contributions are required if certain wage thresholds are met. These contributions fund state unemployment benefits programs. SUI wage bases and tax rates vary by state and may depend on the employer’s industry.
Some states mandate contributions to State Disability Insurance (SDI) or Paid Family Leave programs, providing partial wage replacement for employees unable to work due to non-work-related illness, injury, or family leave. SDI is often funded through employee payroll deductions. Workers’ compensation insurance may also be required in certain states for employees injured on the job.
Setting Up Payroll and Filing Federal Forms
To comply with federal tax laws, employers must obtain an Employer Identification Number (EIN). This nine-digit number is issued by the IRS. An EIN can be obtained online or by mailing or faxing Form SS-4.
Once an EIN is secured, the employer must set up payroll for tax withholding and contributions. Federal income tax withholding is optional for household employees unless requested via Form W-4. Employers must withhold the employee’s portion of FICA taxes from each paycheck.
By January 31, the employer must provide the nanny with a Form W-2. This form reports total wages paid and taxes withheld. A copy of Form W-2, along with Form W-3, must also be submitted to the Social Security Administration (SSA) by the same deadline.
Household employment taxes are reported annually to the IRS on Schedule H (Form 1040). This schedule is attached to the employer’s personal income tax return, Form 1040. Schedule H is required if the employer paid cash wages exceeding the annual FICA threshold to any single employee or paid total cash wages of $1,000 or more in any calendar quarter to all household employees. Payments can be made through increased estimated tax payments or additional withholding from the employer’s own wages.