How to Withhold and Pay Taxes for a Nanny

Employing a nanny involves specific tax responsibilities for the household employer. Unlike hiring an independent contractor, an employer-employee relationship with a nanny triggers federal and sometimes state tax obligations. Understanding these duties is important for compliance and avoiding potential penalties. This guide clarifies the process of fulfilling these tax requirements, from understanding obligations to calculating, reporting, and paying taxes.

Understanding Your Household Employer Tax Obligations

When you employ a household worker like a nanny, you generally become a household employer, which carries distinct tax responsibilities. A worker is considered an employee if you control what work is done and how it is done, regardless of hours worked or how they are paid. For instance, if you set your nanny’s schedule and dictate childcare methods, they are likely an employee, not an independent contractor. This classification determines your tax obligations, unlike an independent contractor who manages their own tax filings.

One primary obligation involves Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. For 2025, if you pay a household employee $2,800 or more in cash wages during the year, you must withhold and pay FICA taxes. The FICA tax rate is 15.3% of wages, split equally between the employer and employee (6.2% for Social Security and 1.45% for Medicare from both parties). While Social Security tax applies only to earnings up to $176,100 in 2025, there is no wage limit for Medicare tax.

You also have responsibilities under the Federal Unemployment Tax Act (FUTA). If you pay $1,000 or more in cash wages to household employees in any calendar quarter, FUTA taxes are typically due. The FUTA tax rate is 6.0% on the first $7,000 of an employee’s wages, and this is an employer-only tax. Employers can often receive a credit of up to 5.4% against FUTA tax for timely state unemployment tax payments, potentially reducing the effective federal rate to 0.6%.

Beyond federal taxes, state unemployment taxes are usually required, and their rates and wage bases vary by state. Many states also require withholding state income tax from employee wages; consult your state’s Department of Labor or equivalent agency for these rules. Federal income tax withholding is generally required only if the nanny requests it by completing Form W-4, Employee’s Withholding Certificate, or if you choose to withhold it.

Setting Up as a Household Employer

Becoming a household employer requires obtaining specific identification numbers. First, secure an Employer Identification Number (EIN) from the IRS. An EIN is a unique nine-digit number used by the IRS to identify businesses for tax purposes. You can apply for an EIN online, by fax, mail, or phone; online applications often provide the EIN immediately. When applying online, provide information like your household employer entity’s legal structure and the reason for applying (e.g., “Started a new business” or “Hired employees”). Have your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) ready, as this is required for the responsible party.

In addition to a federal EIN, register with your state’s labor department for state unemployment insurance, typically obtaining a state employer identification number. State requirements for income tax withholding, if applicable, may also necessitate a separate registration or identification number with the state’s revenue agency. These state-specific registrations ensure compliance with all state-level employment tax laws.

Once you have your EIN and any necessary state tax IDs, obtain a completed Form W-4, Employee’s Withholding Certificate, from your nanny. This form provides the information needed to determine the correct amount of federal income tax to withhold from their wages, including their filing status, additional income, deductions, and credits. Keep this form on file as a record of your nanny’s withholding elections.

Maintaining accurate records is an ongoing requirement. This includes detailed records of wages paid, taxes withheld, and payment dates. Precise records simplify tax calculations, reporting, and year-end reconciliation. Organize and keep these records accessible for at least four years to comply with IRS guidelines.

Calculating and Withholding Taxes

Accurately calculating taxes to withhold from your nanny’s pay and your own employer contributions is a key responsibility. For federal income tax withholding, use the information from your nanny’s Form W-4. The IRS provides Publication 15-T, Federal Income Tax Withholding Methods, and the IRS Tax Withholding Estimator, which can assist in calculating appropriate federal income tax withholding.

For FICA taxes, you are responsible for withholding the employee’s 7.65% share (6.2% Social Security + 1.45% Medicare) from their wages and paying your matching 7.65% share. For example, if your nanny earns $500 in a pay period, you would withhold $38.25 from their pay for FICA taxes, and you would contribute an additional $38.25 as the employer’s share.

Federal Unemployment Tax (FUTA) is an employer-only tax, so no amount is withheld from your nanny’s wages. The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee annually. A credit of up to 5.4% for timely state unemployment tax payments can reduce your effective FUTA rate to 0.6%, meaning the maximum FUTA tax you would typically pay per employee is $42 (0.6% of $7,000).

If your state requires unemployment taxes or state income tax withholding, consult your state’s specific guidelines and tax tables for calculation. These rates and wage bases vary significantly by state. Withhold taxes at the time wages are paid to ensure compliance with federal and state pay-as-you-go tax systems.

Reporting and Paying Taxes

After calculating and withholding taxes, household employers must report and pay these amounts to the appropriate government agencies. For federal employment taxes (FICA and any withheld federal income tax), household employers generally report these quarterly using Form 941, Employer’s Quarterly Federal Tax Return. Very small employers might file annually using Form 944, Employer’s Annual Federal Tax Return, if their annual tax liability is $1,000 or less. FUTA taxes are generally paid quarterly, and the total is reported annually on Schedule H (Form 1040).

Payments for federal taxes are typically made electronically through the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service from the U.S. Department of the Treasury that allows you to pay federal taxes online or by phone. Enroll first, which can take several business days to process as you will receive a PIN in the mail. Once enrolled, you can schedule payments up to 365 days in advance.

The quarterly due dates for Form 941 and associated payments are typically April 30, July 31, October 31, and January 31 of the following year. Schedule payments by 8 p.m. ET at least one calendar day before the due date for timely processing.

For state unemployment and state income taxes, follow your state’s specific reporting and payment requirements. These often involve filing quarterly or annual returns with the state’s Department of Labor or revenue agency and making payments through their designated systems. Timely reporting and payment of both federal and state taxes are crucial to avoid penalties and ensure compliance.

Year-End Tax Forms

The end of the tax year brings annual responsibilities for household employers, primarily involving reporting wages and taxes to your nanny, the Social Security Administration (SSA), and the IRS. By January 31st of the following year, provide your nanny with a Form W-2, Wage and Tax Statement. This form details their total wages paid and amounts withheld for federal income tax, Social Security, and Medicare taxes during the calendar year.

Submit Copy A of all issued W-2s to the Social Security Administration, accompanied by Form W-3, Transmittal of Wage and Tax Statements. Form W-3 summarizes the total wages and taxes reported on all W-2 forms, ensuring your nanny’s earnings and tax contributions are accurately recorded with the SSA.

As a household employer, report your annual household employment taxes on Schedule H (Form 1040), Household Employment Taxes, filed with your personal income tax return (Form 1040). Schedule H consolidates all Social Security, Medicare, FUTA, and any withheld federal income taxes for the year, providing a comprehensive summary of your household employment tax obligations.

States may also have their own year-end reporting requirements for unemployment and income taxes. This could include submitting annual reconciliation forms or other summaries of wages paid and taxes withheld at the state level. Ensuring all federal and state year-end forms are filed accurately and on time completes your annual tax obligations.