Navigate the complexities of legally employing a nanny. Understand the full scope of responsibilities, from initial setup to ongoing financial management and annual reporting, ensuring full compliance.
Paying a nanny “on the books” means formally recognizing them as an employee and complying with all applicable federal and state tax and labor laws. This approach ensures legal adherence, protecting both the employer and the employee. It involves meeting wage requirements, remitting proper taxes, and maintaining accurate documentation. This process is distinct from treating a nanny as an independent contractor, which carries different legal and tax implications. Legal employment practices for household staff like nannies help avoid potential penalties and provide employees with benefits such as Social Security and Medicare contributions.
Becoming a household employer involves several foundational steps to ensure compliance with federal and state regulations. The process begins with obtaining a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique nine-digit number, similar to a Social Security number for individuals, that identifies your household as an employer for tax purposes. You can apply for an EIN online, by fax, or by mail using Form SS-4, “Application for Employer Identification Number.” The online application is generally the fastest method, often providing the EIN immediately during business hours.
Understanding whether your nanny is a “household employee” or an “independent contractor” is important. The IRS determines this classification primarily based on who controls the work performed. If you have the right to control and direct what work is done and how it is done, the worker is generally considered an employee. Nannies, housekeepers, and caregivers hired directly are typically classified as household employees because the hiring party controls when, how, and where the work is performed. Misclassifying an employee as an independent contractor can lead to significant penalties, including liability for unpaid Social Security, Medicare, and unemployment taxes. Independent contractors generally provide their own tools, offer services to the public, and control how they complete their work.
You must also register with relevant state tax agencies. This typically involves registering for state unemployment insurance (SUTA) and, if applicable, state income tax withholding. Requirements for registration vary by state, so it is important to consult your specific state’s labor or revenue department for accurate guidance. Many states offer online portals for employer registration and managing unemployment insurance accounts.
Upon hiring, two initial forms are required: Form I-9, Employment Eligibility Verification, and Form W-4, Employee’s Withholding Certificate. Form I-9 verifies the employee’s identity and authorization to work in the United States. Both the employer and employee must complete this form, with the employee providing acceptable documents from Lists A, B, or C. The employer must examine these documents to ensure they appear genuine and relate to the employee.
Form W-4, Employee’s Withholding Certificate, is used by the employee to inform you how much federal income tax to withhold from their pay. The employee completes this form, indicating their filing status, dependents, and any additional withholding amounts. As the employer, you use the information provided on the W-4 to calculate the correct amount of federal income tax to deduct from each paycheck. This form does not affect Social Security and Medicare tax withholding, as those rates are fixed.
As a household employer, you incur several financial obligations related to wages and taxes. Compliance with federal wage and hour laws is necessary, including the federal minimum wage, which is $7.25 per hour for covered nonexempt employees. If state or local minimum wage laws are higher than the federal rate, you must pay the higher amount. Overtime pay is also generally required at one and one-half times an employee’s regular rate of pay for all hours worked over 40 in a workweek, as stipulated by the Fair Labor Standards Act (FLSA).
Federal Insurance Contributions Act (FICA) taxes fund Social Security and Medicare programs. Both the employer and employee contribute to FICA. For 2025, the Social Security tax rate is 6.2% for both the employer and employee, applied to wages up to a certain annual limit, which is $176,100 for 2025. The Medicare tax rate is 1.45% for both the employer and employee, applied to all wages without a wage base limit. This results in a combined FICA tax rate of 7.65% for both parties. An additional Medicare tax of 0.9% applies to individual earnings over $200,000, or $250,000 for those filing jointly, which is solely an employee contribution and not matched by the employer.
Federal Unemployment Tax Act (FUTA) taxes are paid solely by the employer to fund unemployment benefits. The standard FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee annually. Employers typically receive a credit of up to 5.4% for timely state unemployment tax payments, reducing the effective FUTA tax rate to 0.6%. This means the maximum FUTA tax per employee is typically $42 per year.
State Unemployment Tax Act (SUTA) taxes are also generally employer-only contributions, though some states may require employee contributions. SUTA tax rates and wage bases vary significantly by state and can change annually. These rates are often experience-rated, meaning they can fluctuate based on an employer’s history of unemployment claims.
Federal income tax withholding, and state income tax withholding if applicable, are employee taxes that you, as the employer, are responsible for deducting from the nanny’s pay. These amounts are based on the information provided by the employee on their Form W-4 and any equivalent state withholding forms. Other potential obligations include workers’ compensation insurance, which provides benefits to employees for work-related injuries or illnesses and is mandatory in many states. This insurance covers medical expenses and lost wages, and often protects the employer from lawsuits. Requirements for workers’ compensation vary by state, often depending on factors like hours worked or total wages paid.
Effectively managing ongoing payroll and tax payments for your nanny requires systematic calculation and timely remittance. Each pay period, you will calculate the nanny’s gross pay by multiplying their hourly rate by the total hours worked. If the nanny works over 40 hours in a workweek, those additional hours are typically paid at an overtime rate of one and one-half times their regular hourly wage. For example, if a nanny earns $15 per hour and works 45 hours in a week, their gross pay would be ($15/hour 40 hours) + ($22.50/hour 5 hours), totaling $600 + $112.50 = $712.50.
From the gross pay, you must subtract the employee’s share of FICA taxes and any agreed-upon federal and state income tax withholding to arrive at net pay. The employee’s share of FICA is 7.65% (6.2% for Social Security on wages up to the annual limit, and 1.45% for Medicare on all wages). If the nanny’s federal income tax withholding is elected, the amount is determined by their Form W-4. For instance, if the gross pay is $712.50, the employee’s FICA share would be $712.50 0.0765, which is approximately $54.40. This amount, along with federal and state income tax withholding, is deducted from the gross pay to determine the net amount the nanny receives.
Paying federal taxes, including the employer’s share of FICA, the employee’s withheld FICA and federal income tax, and FUTA taxes, is typically done through the Electronic Federal Tax Payment System (EFTPS). This free service from the U.S. Treasury allows you to make electronic payments directly from your bank account. You can schedule payments up to 365 days in advance and view your payment history. Federal employment taxes are generally paid quarterly, with deadlines usually falling on April 30, July 31, October 31, and January 31 of the following year.
For state taxes, including SUTA and state income tax withholding, payment methods and frequencies vary by state. Many states offer online portals for employers to submit payments, often on a quarterly or monthly basis. It is necessary to consult your specific state’s tax agency for their precise payment instructions and deadlines.
When it comes to handling payroll, household employers have several options. You can manage it yourself, which requires careful attention to detail and staying updated on tax laws and wage thresholds. Alternatively, you can use payroll software designed for household employers, which automates calculations and helps with compliance. A third option is to hire a dedicated payroll service that specializes in household employment taxes. These services handle all calculations, withholdings, and tax payments on your behalf, reducing the administrative burden and ensuring accuracy.
Year-end reporting is a part of paying a nanny on the books, alongside maintaining meticulous records throughout the year. As an employer, you are responsible for preparing and furnishing Form W-2, Wage and Tax Statement, to your nanny. This form details the wages paid and taxes withheld during the calendar year. You must provide your nanny with copies B, C, and 2 of Form W-2 by January 31st of the following year. Additionally, you must file Copy A of Form W-2, along with Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA) by the same January 31st deadline.
Household employers must also file Schedule H (Form 1040), Household Employment Taxes. This form is used to report the Social Security, Medicare, and FUTA taxes, as well as any federal income tax withholding, for household employees. Schedule H is filed with your personal income tax return, Form 1040, by the tax filing deadline, typically April 15th.
Thorough record keeping is important for tax and labor law compliance. The IRS generally recommends retaining household employment tax records for at least four years after the relevant tax return is filed or the tax is paid, whichever is later. These records should include your nanny’s personal information, such as their name, address, and Social Security number. You should also keep detailed records of work hours, pay stubs, and proof of all wage payments. Copies of all tax forms filed, including Form I-9, Form W-4, Form W-2, Form W-3, and Schedule H, along with proof of all tax payments, should be maintained.