Many people assume the nanny tax applies only when hiring a nanny, but the rules can affect a wide range of household workers. If you employ someone to provide services in or around your home, such as a housekeeper, caregiver, gardener or personal assistant, you may be considered a household employer for tax purposes.
When that happens, you could be responsible for withholding and paying Social Security and Medicare taxes, paying federal unemployment taxes and complying with various reporting requirements. However, these obligations generally apply only when the worker is classified as an employee rather than an independent contractor.
Understanding your responsibilities from the beginning can help you avoid penalties and costly compliance mistakes.
Determining Whether a Worker Is an Employee
One of the most important steps is properly classifying the worker.
In general, a household worker is your employee if you have the right to direct both the work being performed and the manner in which it is completed. For example, if you establish a housekeeper’s schedule, provide detailed instructions and dictate how tasks should be completed, the worker will likely be considered your employee.
By contrast, an individual who operates an independent business and determines how services are performed generally qualifies as an independent contractor. A landscaper who works with multiple clients, supplies their own equipment and determines their own methods is a common example.
Worker classification depends on the overall facts and circumstances. Simply labeling someone as an independent contractor does not determine their tax status.
Understanding Nanny Tax FICA Requirements
The nanny tax rules require household employers to pay close attention to wage thresholds.
For 2026, household employers generally must withhold and pay Social Security and Medicare taxes when a household employee earns cash wages of $3,000 or more during the year. The value of meals and lodging provided for the employer’s convenience is generally excluded from this calculation.
Once the wage threshold is met:
- The employee pays 6.2% Social Security tax
- The employer pays 6.2% Social Security tax
- The employee pays 1.45% Medicare tax
- The employer pays 1.45% Medicare tax
This creates a combined tax rate of:
- 12.4% for Social Security
- 2.9% for Medicare
Exception for Certain Younger Workers
An important exception applies to many teenage babysitters and similar workers.
If a household employee is under age 18 and household work is not their primary occupation, Social Security and Medicare taxes generally aren’t required. This exception commonly applies to students who occasionally babysit or perform household work while attending school.
Paying the Employee’s Share
Some household employers choose to pay the employee’s portion of Social Security and Medicare taxes instead of withholding the amount from wages.
While these payments generally aren’t treated as additional wages for Social Security and Medicare tax purposes, they are typically considered taxable income to the employee and must be reported appropriately on Form W-2.
Federal Unemployment Tax and Income Tax Withholding
Household employers may also have federal unemployment tax obligations.
Generally, FUTA tax applies if you pay total cash wages of $1,000 or more to household employees during any calendar quarter in 2025 or 2026. The tax is imposed only on the employer and applies to the first $7,000 of annual wages paid to each employee.
Federal income tax withholding works differently.
In most cases, you are not required to withhold federal income tax from a household employee’s wages. However, if the employee requests withholding and both parties agree, the employee should complete Form W-4 so the proper amount can be withheld.
When federal income tax withholding applies, you will generally need to issue a Form W-2 even if Social Security and Medicare taxes do not apply.
Reporting Household Employment Taxes
Unlike traditional employers, household employers generally do not file quarterly payroll tax returns.
Instead, household employment taxes are typically reported on Schedule H and filed with the employer’s individual income tax return.
Although the taxes are reported annually, you may still need to make estimated tax payments or increase withholding from other sources of income throughout the year. Failing to pay sufficient taxes during the year may result in underpayment penalties when the return is filed.
Obtaining an Employer Identification Number
Household employers generally need an Employer Identification Number (EIN) when reporting employment taxes.
An EIN is separate from your Social Security number and can be obtained directly through the IRS. Having the correct identification number helps ensure accurate tax reporting and reduces processing issues.
Recordkeeping Matters
Good documentation is essential for household employers.
Keep records for at least four years after the later of:
- The due date of the applicable return, or
- The date the tax was paid
Important records include:
- Employee name and address
- Social Security number
- Employment dates
- Wage payments
- Taxes withheld
- Copies of filed tax forms
Maintaining complete records can help support compliance if questions arise in the future.
Additional Household Employer Obligations
Tax responsibilities are only part of the equation.
Household employers may also need to comply with:
- Federal and state wage laws
- Overtime requirements
- Worker eligibility verification requirements
- State unemployment tax obligations
- Other employment-related regulations
Because rules can vary based on the worker’s role and your state, it’s important to review your obligations before hiring household help.
Final Thoughts on Nanny Tax Compliance
The nanny tax affects far more than households employing nannies. Anyone hiring workers such as housekeepers, caregivers, gardeners or similar household staff should understand the payroll tax, reporting and recordkeeping requirements that may apply.
Proper worker classification and timely tax compliance can help you avoid unexpected liabilities and penalties. If you have questions about household employee taxes or your responsibilities as a household employer, contact Landmark CPAs for guidance tailored to your situation.
© 2021. Updated September 2026.
