How to Handle Nanny Taxes in Massachusetts

Hiring a nanny, caregiver, or other household worker in Massachusetts involves specific tax responsibilities. These obligations, often called “nanny taxes,” are the federal and state employment taxes families must manage. This framework provides employees with access to benefits like Social Security, Medicare, and unemployment insurance.

Broader Legal Obligations in Massachusetts

Beyond tax compliance, household employers in Massachusetts have other legal responsibilities under the state’s Domestic Workers’ Bill of Rights. These include:

• Rights to overtime pay and days of rest.
• A written agreement detailing employment terms.
• Workers’ compensation insurance if an employee works 16 or more hours per week.
• Up to 40 hours of paid sick leave per year under the Massachusetts Earned Sick Time law.

Determining Your Tax Obligations

First, determine if the individual working in your home is a household employee. This classification applies if you control what work is done and how it is done. Common examples include nannies, caregivers, and housekeepers, who must be paid at least the Massachusetts minimum wage of $15.00 per hour.

For 2025, you must handle federal employment taxes if you pay a single household employee $2,800 or more in a calendar year. This threshold triggers Social Security and Medicare tax obligations.

A separate threshold applies to unemployment taxes. If you pay $1,000 or more in total cash wages to household employees in any calendar quarter, you are responsible for both federal unemployment tax (FUTA) and Massachusetts state unemployment insurance.

Required Registrations and Initial Paperwork

Before paying your employee, you must register as an employer. First, obtain a free Federal Employer Identification Number (EIN) from the IRS website, which is required for all federal tax filings.

Next, register with two Massachusetts agencies. You will need an account with the Department of Unemployment Assistance (DUA) for your unemployment insurance number. You must also register with the Department of Revenue (DOR) via its MassTaxConnect portal to manage any state income tax withholding.

Upon hiring, you and your employee must complete Form I-9, Employment Eligibility Verification, to confirm their authorization to work in the U.S. Your employee should also complete a federal Form W-4 and a state Form M-4 to determine income tax withholding. These forms are kept for your records and are not filed with any government agency.

Calculating Federal and State Taxes

Federal taxes include Social Security and Medicare (FICA). For 2025, the FICA tax rate is 15.3% of cash wages. This is split evenly: the employer pays 7.65% and the employee pays 7.65%. You can either withhold the employee’s share from their wages or pay it on their behalf.

Federal Unemployment Tax (FUTA) is an employer-only tax. The rate is 6% on the first $7,000 of annual wages. Employers who pay state unemployment taxes on time typically receive a credit that reduces the effective FUTA rate.

In Massachusetts, employers pay State Unemployment Insurance (SUI). For 2025, the new employer rate is 2.13% on the first $15,000 of wages. Massachusetts also requires contributions to its Paid Family and Medical Leave (PFML) program. The 2025 contribution rate is 0.88% of wages, but employers with fewer than 25 employees only need to remit the employee’s share of 0.46%.

Withholding federal and state income tax is not mandatory for household employees. However, you must do so if your employee requests it.

How to File and Pay Your Taxes

Federal employment taxes (FICA and FUTA) are reported annually to the IRS on Schedule H, which is filed with your personal Form 1040 tax return. This form summarizes total wages paid and all federal taxes for the year.

To avoid a large tax bill with your annual return, you can make estimated tax payments throughout the year using Form 1040-ES. This involves dividing your anticipated annual nanny tax liability into four quarterly payments to help prevent underpayment penalties.

State tax obligations in Massachusetts are handled quarterly. Payments for SUI and PFML are submitted to the Department of Unemployment Assistance online, with deadlines on April 30, July 31, October 31, and January 31. Any withheld Massachusetts income tax must also be remitted quarterly to the Department of Revenue through the MassTaxConnect portal.

Annual Year-End Reporting

At the end of each year, you have reporting responsibilities. You must provide your employee with Form W-2, Wage and Tax Statement, by January 31 of the following year. This form details their total annual wages and all amounts withheld for taxes.

After giving the W-2 to your employee, you must file a copy with the Social Security Administration (SSA). This is done using Form W-3, Transmittal of Wage and Tax Statements, which summarizes the figures from all W-2s you issued.

The deadline to file Form W-3 and Copy A of Form W-2 with the SSA is also January 31. This filing can be completed electronically through the SSA’s Business Services Online portal. Completing these reports ensures your employee’s earnings are correctly reported for their tax and benefit purposes.