Guides / Life Events
The "Nanny Tax" Rules: What To Do If You Have Household Employees
Hiring help at home can make family life easier, but it can also make you an employer. This guide explains when household employment rules apply, what taxes may be involved, and what forms usually come next.
In this guide
Who counts as a household employee?
A household worker is someone who performs work in or around your home. Common examples include nannies, babysitters, housekeepers, health aides, private nurses, caretakers, cooks, drivers, and yard workers.
The key question is control. If you control both what work is done and how it is done, the worker is generally your employee. It does not matter whether the worker is full time or part time, paid hourly or weekly, or found through an agency or referral list.
If the worker controls how the work is done and offers services to the public as an independent business, the worker may be self-employed instead. This distinction matters because employee status can trigger payroll tax reporting.
When household employment taxes apply
Household employment can involve Social Security, Medicare, federal unemployment tax, state unemployment tax, and optional federal income tax withholding. The thresholds can change by year, so they should be checked before filing.
| If you pay... | You may need to... |
|---|---|
| Cash wages of $3,000 or more in 2026 to one household employee | Withhold and pay Social Security and Medicare taxes, unless an exception applies. |
| Total cash wages of $1,000 or more in any calendar quarter during the current or prior year | Pay federal unemployment tax on applicable wages, and review state unemployment tax rules. |
| Wages from which federal income tax is withheld by agreement | Report and pay the withheld income tax with your household employment taxes. |
Social Security and Medicare taxes are commonly referred to as FICA taxes. The employee share is generally 7.65% and the employer share is generally 7.65%. Some families choose to pay the employee's share themselves, but that choice has tax consequences for the employee.
What to withhold from wages
You generally must withhold the employee's share of Social Security and Medicare taxes once you expect wages to meet the annual threshold. Federal income tax withholding is different. You are not required to withhold federal income tax unless the employee asks and you agree.
If you agree to withhold federal income tax, ask the employee to complete Form W-4. Keep payroll records that show gross wages, taxes withheld, employer taxes, and any reimbursements or benefits.
Practical tip
Do not wait until tax season to figure this out. Household employment filings are much easier when payroll records are kept from the first paycheck.
Forms and filing responsibilities
Household employers may need to provide a Form W-2 to the employee and file copies with the Social Security Administration. The federal household employment taxes are typically reported on Schedule H with your individual income tax return.
- Form W-2 reports wages and withheld taxes to the household employee.
- Form W-3 transmits W-2 information to the Social Security Administration.
- Schedule H reports household employment taxes with Form 1040.
- State forms may be required for unemployment insurance, new hire reporting, or state withholding.
Avoid common mistakes
The most common mistake is assuming that a household worker can simply be treated as an independent contractor. If you control the work, the IRS may view the worker as an employee even if both parties prefer a simpler arrangement.
Other mistakes include paying cash without records, missing state unemployment rules, forgetting the W-2 deadline, and failing to adjust estimated tax payments or withholding to cover the employer tax cost.
Frequently asked questions
Do I have to withhold federal income tax from a nanny?
Not automatically. Federal income tax withholding is generally optional for household employees unless the employee asks you to withhold and you agree. If you agree, the employee should complete Form W-4.
Do I need to issue a W-2 to a household employee?
Usually yes if you pay Social Security and Medicare wages at or above the annual threshold, or if you withhold federal income tax. The employee should receive the W-2 by the January deadline.
Can I treat a nanny as an independent contractor?
Usually not if you control what work is done and how it is done. In that case, the worker is generally a household employee even if the work is part time.
Are payments to my spouse or child counted the same way?
Some family payments are excluded from certain household employment tax calculations. The rules vary by relationship and tax type, so review them carefully before filing.
Where do household employment taxes get reported?
Federal household employment taxes are generally reported on Schedule H with your individual income tax return. State reporting may also apply.
Need help making the numbers work?
Major family decisions usually touch taxes, cash flow, insurance, and long-term planning. Legacy CPAs can help you sort through the details before you make the next move.
Schedule a consultationThis guide is for general informational purposes only and is not tax, legal, financial, payroll, insurance, or investment advice. It does not cover every situation or exception that may apply to you. Consult a licensed professional before making decisions based on this information.