How to Do Nanny Taxes for a Household Employee
Understand and fulfill your tax responsibilities as a household employer. This guide simplifies the process of managing employee taxes.
Employing a household worker, such as a nanny, introduces tax responsibilities known as “nanny taxes.” These household employment taxes encompass Social Security, Medicare, and federal unemployment taxes. Understanding these obligations ensures compliance with federal and state tax laws. This guide clarifies the process from determining tax applicability to annual filing requirements.
Determining Applicability
First, identify if you are a household employer. An individual is a household employee if you control their work and how they do it, rather than just the result. This distinction is important, as independent contractors, who control their work, offering services to multiple clients, do not fall under these rules. Most nannies, caregivers, and housekeepers are considered employees due to the control exercised by the hiring household.
Federal tax obligations for household employees are triggered by wage thresholds. For 2025, if you pay any single household employee cash wages of $2,800 or more, you must withhold and pay Social Security and Medicare taxes, known as FICA taxes. Social Security tax applies to wages up to an annual limit ($176,100 for 2025); Medicare tax applies to all wages without a wage base limit. If an employee’s wages exceed $200,000, an additional 0.9% Medicare tax withholding applies, though the employer does not match this amount.
Federal Unemployment Tax Act (FUTA) taxes also apply if you pay total cash wages of $1,000 or more to all household employees in any calendar quarter. FUTA taxes apply to the first $7,000 of cash wages paid to each employee annually. These federal thresholds determine your core obligations, but state requirements also exist. Many states have their own unemployment insurance and income tax withholding requirements, with varying thresholds or registration processes.
Certain exceptions to these tax rules exist, such as wages paid to your spouse, child under 21, or parent. Additionally, wages paid to an employee under 18 are exempt from Social Security and Medicare taxes, unless household work is their primary occupation. These conditions help determine how household employment tax rules apply.
Establishing Employer Accounts
Once you are a household employer, set up accounts with federal and state tax authorities. A Federal Employer Identification Number (EIN) is required for filing Schedule H, Form 1040, or Form W-2. An EIN is your unique tax identification number, used on all employer-related tax filings.
Obtain an EIN through the Internal Revenue Service (IRS). The quickest method is to apply online via the IRS website, which provides the EIN immediately upon successful completion. Alternatively, you can apply by faxing Form SS-4, Application for Employer Identification Number, which takes about four business days. Applying by mail using Form SS-4 is another option, though this method has a longer processing time, ranging from four to five weeks.
In addition to federal registration, household employers must register with state agencies. This includes the state unemployment insurance agency and, if applicable, the state department of revenue for income tax withholding. Registration requirements and processes vary significantly by state, so consult your state’s Department of Labor or equivalent agency for instructions. Some states offer online registration portals, while others may require paper forms. State registrations ensure compliance with local employment tax laws.
Handling Regular Payroll and Tax Withholding
Ongoing payroll and tax obligations for a household employee involve calculating wages, withholding taxes, and remitting payments. Gross wages for each pay period must be accurately calculated, accounting for agreed-upon hourly rates or salaries, and including overtime pay where applicable. Overtime rules require payment at one and a half times the regular rate for hours worked over 40 in a workweek.
Federal tax withholding includes federal income tax and employee FICA taxes. While federal income tax withholding is not mandatory for household employees, it is often done if both employer and employee agree, and the employee provides a completed Form W-4, Employee’s Withholding Certificate. The employee’s share of FICA taxes (7.65% for Social Security and Medicare) must be withheld from their cash wages. Employers are also responsible for paying their matching share of FICA taxes.
Beyond FICA, employers must pay FUTA taxes, which are solely an employer responsibility, not withheld from wages. The FUTA tax rate is 6% on the first $7,000 of wages, but most employers can receive a credit of up to 5.4% for timely payments to state unemployment funds, effectively reducing the federal rate to 0.6%. State income tax withholding and state unemployment insurance (SUI) contributions also apply if mandated by your state. These state taxes are paid to the respective state agencies on a schedule determined by state law.
Federal employment taxes, including withheld income tax, FICA, and FUTA, are paid to the IRS through estimated tax payments using Form 1040-ES. These payments are made quarterly throughout the year to avoid potential penalties for underpayment. The Electronic Federal Tax Payment System (EFTPS) is a method recommended by the IRS for federal tax payments. Maintaining records of all wages paid, taxes withheld, and tax payments made is necessary for accurate reporting at year-end.
Fulfilling Annual Filing Obligations
The tax year concludes with annual filing obligations for household employers to report wages and taxes. One requirement is to issue Form W-2, Wage and Tax Statement, to each household employee. This form details the employee’s gross wages, federal income tax, and Social Security and Medicare taxes withheld. The deadline for providing Form W-2 to employees is January 31 of the year following the tax year. A copy of Form W-2, along with Form W-3, Transmittal of Wage and Tax Statements, must also be filed with the Social Security Administration (SSA) by January 31.
Household employers must report household employment taxes on Schedule H, Household Employment Taxes, filed with their personal income tax return, Form 1040, U.S. Individual Income Tax Return. Schedule H summarizes the total wages paid, Social Security, Medicare, and FUTA taxes owed, and any federal income tax withheld throughout the year. This form consolidates all household employment tax information for the tax year.
Schedule H attaches to Form 1040. The deadline for filing Form 1040, including Schedule H, is April 15 of the year following the tax year. In addition to federal forms, household employers may have state annual reporting requirements. This often includes filing copies of Form W-2 and state unemployment tax reports with the state. These state deadlines often align with federal deadlines, but some states may have different due dates, making it necessary to verify state requirements.