If you pay a nanny, housekeeper, or other household worker $3,000 or more in cash wages during 2026, the nanny tax applies to you: you become a household employer responsible for Social Security and Medicare taxes on those wages, and often federal unemployment tax as well.1Social Security Administration. Employment Coverage Thresholds You report and pay it once a year on Schedule H, attached to your personal Form 1040.2Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes The label covers any domestic worker whose work you direct, not just nannies.
Who Counts as a Household Employee
What matters is control. If you set the schedule, decide how the work gets done, and provide the supplies, the person working in your home is your employee. The job title makes no difference. Nannies, housekeepers, cooks, gardeners, private nurses, and senior caregivers all qualify when you direct their work.3Internal Revenue Service. Publication 926 – Household Employer’s Tax Guide
Workers who control their own methods and bring their own tools are usually independent contractors. The IRS looks at the real working relationship, not the label you attach to it, and misclassification is the most common way household employers get into trouble.
What You Owe in 2026
Social Security and Medicare
Once cash wages to a household employee hit $3,000 for the year, you owe FICA taxes on every dollar of cash wages paid to that worker for 2026.4Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees The combined rate is 15.3%, split evenly:
- Social Security: 6.2% withheld from the employee, plus a matching 6.2% from you, on wages up to $184,500.5Social Security Administration. Contribution and Benefit Base
- Medicare: 1.45% withheld from the employee, plus a matching 1.45% from you, with no wage cap.3Internal Revenue Service. Publication 926 – Household Employer’s Tax Guide
You withhold the employee’s 7.65% share from each paycheck and pay your own 7.65% share out of pocket. You can choose to cover the employee’s share too, but the amount you pay on their behalf counts as additional taxable wages. Once an employee’s wages pass $200,000 in a calendar year, an additional 0.9% Medicare tax applies. You must withhold it, but you don’t match it.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Federal Unemployment Tax
A separate federal unemployment tax applies if you pay $1,000 or more in any single calendar quarter. The FUTA rate is 6% on the first $7,000 of each employee’s annual wages.7Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return In practice, most employers pay far less. Paying into your state unemployment fund on time earns a credit of up to 5.4%, bringing the effective FUTA rate down to 0.6%, a maximum of $42 per employee per year.3Internal Revenue Service. Publication 926 – Household Employer’s Tax Guide
State Taxes
Most states require household employers to pay into a state unemployment fund, and many require state income tax withholding from the employee’s paycheck. New employer state unemployment rates commonly range from 2% to 4%, though they vary by state. Federal income tax withholding is optional under federal law and happens only if both you and the employee agree, but some states require state income tax withholding regardless.
Forms You Need Before the First Paycheck
- Employer Identification Number. Apply online with the IRS using Form SS-4. The nine-digit EIN identifies your household’s tax account separately from your personal filings and is issued immediately after you complete the online application.8Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
- Form I-9. Every U.S. employer must verify a new hire’s identity and work authorization. The employee completes Section 1 on or before the first day; you complete Section 2 within three business days after that, after physically examining the required documents.9U.S. Citizenship and Immigration Services. Completing Form I-9
- Form W-4. Your employee completes this if you both agree that you’ll withhold federal income tax. It tells you how much to withhold.10Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
Collect all of this before or during the first week of employment. Backfilling paperwork months later creates gaps that surface at tax time.
How to Report and Pay
Household employers file annually, not quarterly. You report all household employment taxes for the year on Schedule H and attach it to your Form 1040.2Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes Schedule H totals your Social Security, Medicare, and FUTA taxes for the year, and the result flows into your personal return.
The convenience of annual filing has a cash-flow trap. A full year of nanny taxes can run several thousand dollars, and it all comes due in April unless you pay in during the year. The IRS expects you to cover household employment taxes either by increasing income tax withholding from your own paycheck (adjust your W-4 with your employer) or by making quarterly estimated payments on Form 1040-ES.11Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals If you don’t prepay enough, you can be hit with an underpayment penalty on top of the tax.4Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
Payments can go through the Electronic Federal Tax Payment System, which is free and allows scheduling up to a year ahead.12Electronic Federal Tax Payment System. Electronic Federal Tax Payment System
Year-End Deadlines
You must give your employee a completed Form W-2 by January 31 of the following year.3Internal Revenue Service. Publication 926 – Household Employer’s Tax Guide A copy of the W-2, together with Form W-3, must also be filed with the Social Security Administration by the same January 31 date.13Social Security Administration. Deadline Dates to File W-2s If January 31 falls on a weekend or holiday, the deadline shifts to the next business day.
Schedule H is due with your Form 1040, typically April 15. An extension on your personal return extends the Schedule H filing date too, but any tax owed is still due April 15, and interest runs on any unpaid balance from that date.
Penalties for Late or Missing Filings
Late W-2, late Schedule H, and failure to pay each carry their own penalty, and they stack.
For W-2s due after December 31, 2026, the penalty depends on how late you file:14Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026)
- Within 30 days of the deadline: $60 per form.
- More than 30 days late but filed by August 1: $130 per form.
- After August 1 or not filed: $340 per form.
- Intentional disregard: at least $690 per form, no cap.
A late Schedule H triggers the standard failure-to-file penalty of 5% of the unpaid tax per month or partial month, up to 25%.15Internal Revenue Service. Failure to File Penalty A separate failure-to-pay penalty of 0.5% per month (also capped at 25%) runs at the same time if the tax isn’t paid by the due date. Interest accrues on top of both.
What Happens If You Pay Under the Table
Plenty of families skip the paperwork, and the IRS has acknowledged that catching non-filers is hard. Hard to detect is not safe, though, and when unpaid household employment taxes do come to light, the bill lands heavy.
The most common trigger is a former nanny or housekeeper filing for unemployment benefits. The state unemployment office looks for the employer’s contributions, finds nothing, and alerts the IRS. A worker applying for Social Security retirement benefits can start the same chain. Divorce proceedings and background checks have exposed unpaid nanny taxes too.
When the IRS assesses, it collects the full amount of unpaid taxes (both your share and the employee’s share you should have withheld), the failure-to-file and failure-to-pay penalties above, and interest running from the original due date. The IRS generally has 10 years from the date the tax is assessed to collect it.16Internal Revenue Service. Time IRS Can Collect Tax Paying off the books also deprives your worker of Social Security credits, unemployment eligibility, and a verifiable income history they may need for a mortgage or loan.
Wage and Hour Rules Still Apply
Household workers are also covered by federal labor law, and this is where families who thought they had the tax side handled sometimes trip. The Fair Labor Standards Act requires at least the federal minimum wage of $7.25 per hour, and many states and cities set higher floors. You cannot cover unlimited hours with a flat weekly salary. Every hour has to be paid at no less than the applicable minimum wage, and hours have to be tracked.
Live-out employees are owed time-and-a-half for hours beyond 40 in a workweek. Live-in domestic workers are exempt from the federal overtime premium under FLSA and are paid their regular hourly rate for all hours worked.17Office of the Law Revision Counsel. 29 USC 213 – Exemptions Several states override that exemption and require overtime for live-in workers too, so check your state’s rules.
Federal law requires you to keep records for every non-exempt worker: daily hours, weekly totals, pay rate, and deductions. Payroll records must be kept for at least three years and supporting documents like timesheets for at least two.18U.S. Department of Labor. Fact Sheet – Recordkeeping Requirements Under the Fair Labor Standards Act If a wage dispute comes up, the burden is on you to produce them.
Tax Breaks That Offset the Cost
Two federal tax breaks can absorb a real share of the cost, and many household employers claim neither.
Dependent Care FSA
If your employer offers a Dependent Care Flexible Spending Account, you can set aside up to $7,500 per year in pretax dollars (or $3,750 if married filing separately) for the care of a child under 13 or a dependent who cannot care for themselves.19Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs The limit rose from $5,000 starting with the 2026 tax year. Because the money comes out before federal income and FICA taxes, a household in the 22% bracket contributing the full $7,500 avoids roughly $2,275 in combined federal income and payroll taxes. You cannot use the same expenses for both the FSA and the Child and Dependent Care Credit.
Child and Dependent Care Credit
If a Dependent Care FSA isn’t available or your childcare costs exceed what you set aside there, the Child and Dependent Care Credit lets you claim a credit on qualifying care expenses. Qualifying expenses are capped at $3,000 for one dependent or $6,000 for two or more. The credit percentage runs from 20% to 35% depending on your adjusted gross income, with higher incomes at 20%. It’s a credit, not a deduction, so it comes off your tax bill directly.
Workers’ Compensation Is a Separate Question
Many states require household employers to carry workers’ compensation insurance. The trigger varies: some states use hours per week, others total wages, and a few exempt household workers entirely. If your worker is injured on the job and you lack the required coverage, you can face fines and personal liability for medical bills and lost wages.
Standard homeowners policies typically exclude coverage for domestic employees who are required by law to be covered under workers’ compensation. Occasional workers may have some protection under a homeowners policy, but regular or full-time household workers usually require a separate workers’ compensation policy or an endorsement. Contact your state’s workers’ compensation board and your insurance carrier to confirm what applies where you live.