Household Employee Wages: Thresholds, Schedule H, and Withholding

If you pay someone to work in your home, the nanny tax rules kick in the moment you cross one of two dollar lines: $3,000 in cash wages to any single worker during 2026, or $1,000 in total cash wages to all household workers combined in any calendar quarter of 2025 or 2026.¹² Once you cross either line, the IRS treats you as an employer: you owe Social Security, Medicare, and federal unemployment tax on the wages, you have to keep records, and you report everything once a year on Schedule H attached to your Form 1040.³ The rules apply to nannies, housekeepers, cooks, gardeners, home health aides, and anyone else you hire to work in or around your home.

Who the Rules Actually Cover

The dividing line between a household employee and an independent contractor is control. Under the federal common-law test, a worker is your employee if you have the right to direct not only what work gets done but how it gets done.⁴ Set the schedule, decide which rooms get cleaned first, hand the worker a vacuum you bought, and that person is your employee. Job title doesn’t matter. Neither does whether the worker shows up once a week or every day.

Workers who bring their own equipment, set their own hours, and serve multiple clients usually fall on the contractor side. A plumber who fixes your sink and sends an invoice is running a business. A housekeeper who arrives every Tuesday at 9 a.m. to follow your checklist is working for you. The practical reality of the relationship controls the classification, not the label the two of you agree to use.

Family Members You Don’t Owe Tax On

Some people you pay for household work never trigger these taxes at all. You do not withhold or pay Social Security and Medicare taxes on wages paid to your spouse, your child under age 21, or (in most cases) your parent for domestic work in your home.¹ Those same wages are also excluded from the FUTA calculation. Hire your teenage son to mow the lawn all summer and none of it counts.

The parent exception has limits. If your parent cares for your child who is under 18 (or who has a physical or mental condition requiring care), and you are divorced, widowed, or living with a spouse unable to care for the child due to disability, different rules can apply. IRS Publication 926 walks through the specific situations where a parent’s wages do become taxable.³

The Two Thresholds That Trigger Tax

Two separate dollar amounts control when federal employment taxes start.

Social Security and Medicare (FICA). If you pay any single household employee $3,000 or more in cash wages during 2026, you owe FICA taxes on all cash wages paid to that worker for the year. The threshold is per employee, and it’s adjusted periodically.¹⁵

Federal Unemployment Tax (FUTA). If you pay $1,000 or more in total cash wages to all household employees combined in any calendar quarter of 2025 or 2026, you owe FUTA on the first $7,000 you pay each employee during 2026. The FUTA trigger looks at your combined payroll, not what any one person earns.²

Stay below $3,000 per person for the year and FICA generally doesn’t apply. But even modest payments can push you past the $1,000 quarterly FUTA line if you employ more than one person.

What You Actually Pay

Once you clear the FICA threshold, both you and your employee each owe 6.2% for Social Security and 1.45% for Medicare, a combined 7.65% on each side.¹ You can withhold the employee’s 7.65% share from each paycheck or cover it yourself. If you cover it, those payments become additional taxable wages for income tax purposes but aren’t subject to further FICA.

FUTA works differently. Only you, the employer, pay it. The gross rate is 6.0%, but most employers get a credit of up to 5.4% for state unemployment taxes paid, bringing the effective federal rate down to 0.6%.³ That 0.6% applies only to the first $7,000 in cash wages per employee, so the maximum FUTA tax per worker is $42 a year. A small amount in absolute terms, but skipping it creates problems out of proportion to the dollars.

Which Payments Count as Wages

Taxable wages include almost every form of compensation you give a household employee for work. Cash, checks, direct deposits, bonuses, and gift cards all count.⁶ Non-cash items you provide as part of the arrangement are taxable at fair market value.

A few categories stay off the books:

Meals and lodging can be excluded if you provide them on your premises for your convenience, or if the employee is required to live in your home as a condition of the job. The lodging exclusion has a strict test: the employee must be required to accept it to properly perform their duties. Offering free rent as a perk doesn’t qualify.⁷
Mileage reimbursements for the employee’s own car, paid at or below the federal standard rate of 72.5 cents per mile for 2026, are not taxable wages.⁸
Employer-provided accident and health plan coverage is generally excluded from the employee’s income.⁶

The total of all taxable payments across the year is what you measure against the $3,000 and $1,000 thresholds.

Income Tax Withholding Is Optional

Something that trips up a lot of household employers: you are not required to withhold federal income tax from a household employee’s paycheck. You should withhold only if the employee asks you to and you agree.³ That’s a real departure from a regular job, where income tax withholding is automatic.

If you both agree to withhold, the employee fills out Form W-4 and you use the tables in IRS Publication 15-T to calculate the amount.⁹ Either party can end the arrangement in writing at any time. If you don’t withhold, the employee handles their own liability through estimated tax payments or withholding at another job.

Paperwork Before the First Paycheck

Three items need to be in place before you pay anyone:

An Employer Identification Number. Apply by filing Form SS-4 online at IRS.gov. Your nine-digit EIN issues immediately.¹⁰
Form I-9. Every employee completes this to verify work authorization. You have three business days from the start date to review the employee’s identity documents and complete Section 2. Missing the deadline can result in fines of hundreds or thousands of dollars per violation.¹¹
Form W-4, if you and the employee have agreed to income tax withholding.⁹

Keep employment tax records for at least four years after the tax is due or paid, whichever is later.¹²

Filing Once a Year on Schedule H

Household employers get a real break on filing logistics. Federal law lets you report all employment taxes once a year on Schedule H, attached to your personal Form 1040, instead of filing quarterly returns.¹⁴ Schedule H combines your FICA and FUTA liabilities, and the resulting tax flows onto Schedule 2 of your 1040.¹⁵

By January 31 of the following year, you must give your employee a Form W-2 showing total wages and taxes withheld.¹⁶ Copy A of the W-2 and transmittal Form W-3 go to the Social Security Administration by the same date, which you can do electronically through SSA’s Business Services Online.¹⁷

Because household taxes are reported annually rather than through quarterly deposits, you need a plan to avoid an underpayment penalty. Two approaches work. If you have a regular job, adjust your own Form W-4 with your employer to have more income tax withheld from your paychecks, enough to cover what you’ll owe in April. Or make estimated tax payments quarterly on Form 1040-ES, and include your expected household employment taxes in the calculation.¹⁸ Either way, you’re prepaying enough during the year to stay out of penalty territory.

What Misclassification Costs

Calling a household employee an “independent contractor” to avoid payroll taxes is the most common mistake in this area, and it’s the one the IRS is most likely to catch. If you control how the work is done, the worker is your employee no matter what you call the arrangement. Paying someone on a 1099 doesn’t change the underlying relationship.

The consequences compound. You become liable for the full employer share of FICA and FUTA you should have paid, plus interest, plus penalties for failure to file the required returns and failure to furnish W-2s. Section 530 of the Revenue Act of 1978 offers relief if you had a reasonable basis for the treatment and filed all required 1099s consistently, but the tests are strict, requiring reporting consistency, substantive consistency, and a recognized reasonable basis such as prior audit results, judicial precedent, or long-standing industry practice.¹⁹ Most household employers who misclassify a nanny or housekeeper won’t meet those tests.

Beyond taxes, misclassification cheats the employee out of Social Security credits, unemployment eligibility, and workers’ compensation coverage. Those losses can surface years later when the worker files for retirement or disability.

Minimum Wage and Overtime Also Apply

Employment tax rules are only half the picture. The Fair Labor Standards Act covers household employees too, which means you owe at least the federal minimum wage of $7.25 per hour for every hour worked.²⁰ Many states and cities set higher minimums, so check your local rules.

A domestic worker who does not live in your home must receive one and a half times their regular rate for hours over 40 in a workweek.²¹ A flat weekly salary doesn’t get you out of that. Live-in employees are exempt from overtime but still owed minimum wage, and you’re required to track and record their actual hours regardless of any agreement about meal periods, sleep time, or off-duty time.¹³

1
Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
2
Office of the Law Revision Counsel. 26 USC 3306 – Definitions
3
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
4
eCFR. 26 CFR 31.3121(d)-1 – Who Are Employees
5
Office of the Law Revision Counsel. 26 USC 3121 – Definitions
6
Internal Revenue Service. Publication 525 – Taxable and Nontaxable Income
7
Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits
8
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile
9
Internal Revenue Service. Form W-4 (2026) – Employee’s Withholding Certificate
10
Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
11
U.S. Citizenship and Immigration Services. Handbook for Employers M-274 – 2.0 Who Must Complete Form I-9
12
Internal Revenue Service. Recordkeeping Requirements for Domestic Service Workers Under the Fair Labor Standards Act
14
Office of the Law Revision Counsel. 26 USC 3510 – Coordination of Collection of Domestic Service Employment Taxes With Collection of Income Taxes
15
Internal Revenue Service. Schedule H (Form 1040) – Household Employment Taxes
16
Internal Revenue Service. General Instructions for Forms W-2 and W-3
17
Social Security Administration. Deadline Dates to File W-2s
18
Internal Revenue Service. Estimated Tax for Individuals
19
Internal Revenue Service. Worker Reclassification – Section 530 Relief
20
U.S. Department of Labor. Live-in Domestic Service Workers Under the Fair Labor Standards Act
21
eCFR. 29 CFR Part 552 – Application of the Fair Labor Standards Act to Domestic Service