The Nanny Tax Rules: What To Do If You Have Household Employees

The "nanny tax" rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.

A household worker is someone who does work in or around your home. Examples include babysitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.

A worker is your employee if you control what work is done and how it is done. It does not matter if the work is part‑time or full‑time, whether you hired through an agency, or how you pay (hourly, daily, weekly, or per job). If only the worker controls how the work is done and provides tools and services to the public, they are likely self‑employed. If an agency controls the work, the worker is not your employee.

Example (employee): You pay Emily to babysit and do light housework four days a week in your home, following your instructions and using your supplies. Emily is your household employee.

Example (not an employee): You pay Nathan to care for your lawn. He serves other clients, brings his own tools, and hires/pays helpers. Nathan and his helpers are not your household employees.

It is unlawful to knowingly hire or continue to employ a person who cannot legally work in the U.S. When you hire a household employee to work regularly, they must complete USCIS Form I‑9, Employment Eligibility Verification. You must examine documents, complete the employer section, and keep the form for your records. Do not send it to USCIS.

Two copies of Form I‑9 are included in the USCIS Employer Handbook. Visit USCIS online or call 800‑767‑1833 for the handbook or additional copies.

If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes (FICA), pay federal unemployment tax (FUTA), or both. In general:

• FICA (Social Security & Medicare): Withhold and pay if you pay $2,800 or more in 2025 ($2,700 in 2024) in cash wages to any one household employee. Do not count wages paid to your spouse, your child under age 21, your parent, or an employee under 18 during the year (subject to exceptions noted later).
• FUTA: Pay if you pay $1,000 or more in cash wages in any calendar quarter this year or last year. Do not count wages to your spouse, your child under 21, or your parent. FUTA applies only to the first $7,000 of wages per employee per year, generally at 6.0% before credits (often net 0.6% with full state credit).

You are not required to withhold federal income tax, but you may if the employee requests it and you agree. If your employee provides care for your child under 13 (or your spouse/ dependent incapable of self‑care) so you can work, you may be eligible for the dependent care credit; your share of FICA/FUTA can be included in qualifying expenses.

Contact your state unemployment tax agency to determine your obligations for state unemployment tax, other state payroll taxes, and workers’ compensation insurance. If you do not owe FICA/FUTA and do not withhold federal income tax, the remainder of this guide may not apply to you.

Additional Medicare Tax: Employers must withhold the 0.9% Additional Medicare Tax on an employee’s wages paid in excess of $200,000 in a calendar year. There is no employer match for this additional tax.

Both you and your employee may owe FICA. Your share is 7.65% (6.2% Social Security + 1.45% Medicare) of the employee’s FICA wages. The employee’s standard share is also 7.65% on wages below the Additional Medicare threshold.

FICA Wages

If you pay $2,800 or more in 2025 ($2,700 in 2024) in cash wages to a household employee, all cash wages up to the Social Security wage base ($176,100 for 2025; $168,600 for 2024) are Social Security wages and all cash wages are Medicare wages. Do not count non‑cash wages (food, lodging, clothing, etc.) for FICA. If you pay less than the threshold, FICA is not owed.

Wages Not Counted

• Your spouse
• Your child under age 21
• Your parent (with limited exceptions for care‑of‑child situations)
• Employees under age 18 (unless household services are their principal occupation)

Items Not Treated as Wages (for income tax withholding purposes)

• Meals provided at your home for your convenience.
• Lodging provided at your home for your convenience and as a condition of employment.
• Up to $325/month in 2025 ($315 in 2024) for transit passes or reimbursements.
• Up to $325/month in 2025 ($315 in 2024) for parking at or near work/commute locations.

Withholding the Employee’s Share

Generally withhold 7.65% from each payment when you expect to meet the FICA threshold. If you withhold but later pay under the threshold, repay the employee. Pay withheld taxes with your income tax (unless you opt into business deposit rules).

Not withholding: You may choose to pay the employee’s share from your own funds. In that case, the amounts you pay for the employee’s share are treated as income to the employee for income tax purposes but are not counted as FICA or FUTA wages.

FUTA funds unemployment compensation. You may owe both FUTA and state unemployment tax. The FUTA tax rate is 6.0% on the first $7,000 of cash wages per employee, generally reduced by a credit (up to 5.4%) if state contributions are paid on time (often net 0.6%). Do not withhold FUTA from wages; it is paid by the employer.

FUTA applies if you pay $1,000 or more in cash wages in any calendar quarter in the current or prior year. Once an employee reaches $7,000 in the year, additional wages are not subject to FUTA.

You are not required to withhold federal income tax. You may do so if your employee asks and you agree. The employee must give you a completed Form W‑4. Any tax you pay for the employee without withholding must be included in the employee’s wages for income tax purposes and is also counted as FICA and FUTA wages.

Certain workers may qualify for the Earned Income Tax Credit (EITC). The employee’s copy of Form W‑2 (Copy B) includes EITC information on the back, which satisfies the notice requirement if provided by January 31. If you issue a substitute Form W‑2 without the EITC notice, you must provide Notice 797 (or equivalent wording) by the applicable deadline.

Attach Schedule H to your federal income tax return to report household employment taxes. Amounts are due by the April filing deadline. To avoid a balance due, increase income‑tax withholding with your employer or pension payer, or make estimated tax payments using Form 1040‑ES.

Business/farm employers: Sole proprietors or farm operators may include household employment taxes with business/farm deposits and report on Forms 941/943 and 940 instead of Schedule H.

• Employer Identification Number (EIN): Needed on forms. Apply with Form SS‑4 if you don’t already have one.
• Form W‑2/W‑3: File a separate Form W‑2 for each employee paid FICA wages (threshold met) or from whom you withhold federal income tax. Give Copies B, C, and 2 to your employee by January 31 and send Copy A with Form W‑3 to SSA by January 31.
• Schedule H (Form 1040): Report household employment taxes (FICA, FUTA, withheld income tax) with your return by the April deadline. If you have no return filing requirement, file Schedule H by itself per instructions.
• Business employment returns (alternative): If using business/farm deposits, report on Forms 941 or 943 and on Form 940 and include the W‑2 with your business/farm W‑2/W‑3 filings.

Keep copies of Schedule H (or business employment returns) and related Forms W‑2, W‑3, W‑4, and any W‑5. Maintain wage/tax records for at least four years after the due date of the return or the date taxes were paid, whichever is later.

Wage & Tax Records

• Pay dates and amounts (cash and non‑cash)
• Employee FICA withheld or paid by you
• Any federal income tax withheld
• Any state employment taxes withheld

Employee SSN

Obtain and record the employee’s name and Social Security number exactly as on the card by the first pay date when FICA applies or income tax is withheld. Employees without an SSN must apply using Form SS‑5 (ssa.gov).

Use this list to contact your state for registration, rates, and filing requirements.

• Verify work eligibility (Form I‑9).
• Determine state tax and insurance requirements.
• When paying your employee:
  • Withhold FICA (if threshold met) and, if agreed, federal income tax.
  • Decide how you will make/pay taxes (with return, business deposits, or estimates).
  • Keep required records.
• By January 31:
  • Obtain an EIN (if needed).
  • Provide Form W‑2 (Copies B, C, 2) to the employee.
  • Send W‑2 Copy A with W‑3 to SSA.
• By April 15: File Schedule H with your tax return (or file separately if you don’t otherwise file a return).