Understanding Nanny Payroll and Nanny Taxes

You found a nanny who fits your family. The hard part is done. Next on your long list of things to do: Figuring out the best way to pay your nanny.  

When you hire a nanny, you’re typically considered a household employer by the Internal Revenue Service. This comes with specific tax and legal responsibilities, including registering as an employer with your state and managing payroll taxes.  

Missing this step can lead to costly penalties, interest, and fines. It can also cause unnecessary stress for you and your nanny.  

This post can help you navigate these complexities.  

We’ll highlight some of the responsibilities of a household employer, addressing tax obligations, hiring, and tax forms. We’ll also cover payroll solutions that can help simplify the process.  

It’s always a good idea to consult a financial or tax professional regarding your specific situation.  

Am I a Household Employer?

Many families don’t realize that the IRS may consider them a household employer when they hire a nanny. A common question people ask is, “Am I a household employer?”

The IRS may consider you a household employer if:  

• You will pay wages of $2,800 or more in 2025  

• You determine the type of work, and when and where the person will complete the work  

Being a household employer means you must follow proper payroll and tax procedures.  

You will be responsible for setting up and following a payroll schedule, including withholding Social Security and Medicare (also known as FICA) taxes from your employee’s paycheck, and reporting these wages to the IRS.  

Misclassifying a nanny as an independent contractor, if they should be classified as an employee, can lead to audits and fines.  

The Importance of Nanny Payroll

Nanny payroll means more than just writing a check for your nanny. As a household employer, it means compensating your nanny while following tax laws as well as federal and state regulations.  

Household employers are responsible for calculating wages and tax withholdings. You also need to report earnings and pay your nanny in accordance with applicable wage payment laws.  

Here are some key aspects involved in how to pay a nanny:  

• Tracking hours

• Calculating and withholding taxes

• Determining gross and net pay  

• Submitting and paying withholding taxes

• Paying employer taxes  

• Filing required tax forms

Taking care to manage the employment setup clearly from the start helps:  

• Avoid fines, penalties, and back taxes

• Secure your nanny’s access to future benefits with proper tax contributions

• Build a professional relationship grounded in trust and transparency

Attempting to work around or ignore nanny payroll obligations can lead to serious consequences. On the other hand, handling payroll correctly can provide peace of mind for you and your nanny. Complying with household employer requirements can help protect you, your family, and your caregiver.  

What is the Nanny Tax?

Nanny taxes are the payroll taxes household employers are responsible for withholding and paying each paycheck when they hire a household employee, such as a nanny.  

Required taxes include remitting the employee and employer portion of Social Security and Medicare (FICA).  

Here is a quick breakdown of the nanny tax criteria:

• If you will pay your nanny $2,800 or more in 2025, you must withhold and pay Social Security and Medicare on all their wages.

• If you will pay your nanny $1,000 or more in a quarter, you must pay the federal unemployment tax, or FUTA. You may also owe state unemployment taxes.

You may also need to withhold and pay federal and state income taxes as well as local taxes, depending on where you live.

FICA or Federal Insurance Contribution Act

FICA taxes cover Social Security and Medicare contributions. Both you and your nanny share the responsibility for these taxes.

• Social Security Tax: Both employer and employee pay 6.2% on taxable wages to cover retirees (and others who are eligible to receive benefits).

• Medicare Tax: You and your employee will each be responsible for covering 1.45% of taxable earnings, funding medical coverage for adults 65 years of age or older and younger people with disabilities.

FUTA or Federal Unemployment Tax Act

FUTA contributions are solely the employer's responsibility.  

The current FUTA tax rate is 6%, on the first $7,000 in wages you pay each employee during the calendar year. This is often referred to as the FUTA wage base.

FUTA is designed to work in tandem with state unemployment taxes, also known as state unemployment insurance (SUI).  

As an employer, you're generally responsible for paying both. If you qualify for the maximum state tax credit, you may receive a credit of up to 5.4%, effectively lowering your FUTA rate to 0.6%. This varies from state to state, so be sure to check the rules in your state.

Income Taxes

Federal income taxes are determined by how the individual completed Form W-4, Employee’s Withholding Certificate.  

State income tax requirements can vary. It's important to research your state's specific obligations for household employment.

Workers’ Compensation

While not a payroll tax, workers’ compensation insurance is an employer-paid expense tied to hiring an employee. Workers’ compensation insurance helps provide financial support for employees who experience job-related injuries or illnesses.  

Employers' responsibilities and rates vary by state.  

In most cases, workers’ compensation coverage is mandatory once you hire your first employee. Some states may offer exceptions for very small businesses, sole proprietors, or certain industries. However, for many employers, it’s a legal requirement.

Managing Payroll Taxes

Some families choose to manage payroll and nanny payroll taxes manually, with spreadsheets and files. This is definitely an option. Others opt to use a payroll service provider.  

An online payroll service, like SurePayroll(R) By Paychex, can help simplify nanny payroll and payroll tax management. A trusted online payroll provider, SurePayroll has helped families across the nation with our service that automatically calculates, withholds, files, and pays required payroll taxes.  

Key Household Employer Responsibilities

Being a household employer involves several key duties and responsibilities, including:  

• Classifying your nanny correctly  

• Registering for tax accounts

• Filing necessary employment documents with federal and state agencies

• Determining the appropriate pay period and schedule

• Managing wages and tax withholdings

• Paying the employer portion of FICA taxes

• Preparing federal, state, and, if applicable, local tax forms

• Adhering to federal, state, and, if applicable, local employment laws

Mishandling these tasks can result in significant financial penalties.

Helpful Tips, Steps, and Forms for Household Employers

Here are some tips to help you set up your household employment on the right foot.  

Get an Employer Identification Number (EIN)

Sometimes referred to as a Federal Identification Number (FEIN), you will use the EIN to help with tax reporting to the IRS.  

You can apply for free online through the IRS website. If you have all the required information, the IRS may provide your EIN within minutes.  

Register with Your State

Employers, even household employers, may be required to register with their state when they hire their first employee. State registration for household employers allows employers to pay any required taxes.  

Need help? You don’t have to do it alone. SurePayroll can help you register with your state, set up your nanny payroll, and automatically calculate, withhold, and pay payroll taxes.

Create an Unemployment Insurance Account

You’ll also need to create an unemployment insurance account and get the number. This will allow you to manage unemployment taxes.  

In most states, this involves contacting your state unemployment office and registering for an account.  

Complete Form I-9

Verify your nanny’s identity and eligibility to work by completing Form I-9, Employment Eligibility Verification.  

All U.S. employers should complete this form for every person they hire for employment in the United States. Both employers and employees complete the form.  

Complete Form W-4

Have your nanny fill out Form W-4, Employee’s Withholding Certificate. The information here will determine federal income tax withholding.  

File a New Hire Report

You will need to report your new nanny hire to your state by filing a new hire report.  

At SurePayroll, our household payroll service includes this.  

Tax Forms for Household Employers

Handling nanny payroll comes with nanny tax filing and tax forms. Knowing which documents to prepare and when can make tax time easier for you and your employee.  

Common Tax Forms for Nanny Payroll

Here are a few forms commonly used by families who employ a nanny or caregiver:  

• Form W-2, Wage and Tax Statement

• Form W-4, Employer's Withholding Certificate

• Schedule H, Household Employment Taxes, you will attach this to Form 1040 when filing taxes

Quarterly vs Annual Tax Filings

If you’re handling payroll on your own, it’s helpful to keep track of when forms are due.  

Here’s a quick review:  

• Quarterly: You may need to file Form 941 or 944 to report federal taxes withheld and what you owe as an employer

• Annually: You’ll prepare a W-2 for your nanny and submit a W-3 to the Social Security Administration.  

Tips to Stay Organized

Keeping your forms and records in one place can take the stress out of tax season. Here are a few tips that might help:  

• Set a calendar reminder ahead of quarterly and annual form deadlines  

• Schedule time to review and, if necessary, update forms annually

• Double check that names, addresses, Social Security numbers are correct

• Make sure totals match your year-end payroll records

• Consult with a tax professional with any questions

Want more help? Consider using a payroll software service.  

Nanny Tax Credits and Tax Deductions

While hiring a household worker comes with real financial and nanny tax responsibilities, there are also ways to save at tax time. Whether you’re paying out of pocket or through a workplace benefit, some of these expenses may qualify for tax deductions or tax credits.  

Below are some items to check into and talk with your tax or financial advisor about.  

Child and Dependent Care Tax Credit

If you pay a nanny so you (and your spouse, if filing jointly) can work or look for work, you may qualify for this federal tax credit. It could reduce the amount of taxes you owe, based on how much you paid for care.  

To take advantage of this, your nanny must be reported as a household employee with a W-2.  

Dependent Care Flexible Spending Account (FSA)

If your employer offers a Dependent Care FSA, you can contribute up to a set amount tax-free each year to cover eligible care expenses, including nanny wages.  

Use our free FSA calculator to estimate how contributions could affect your paystub.

Check with your tax advisor to determine what options are best for your situation.  

Tax Deductions

Some families may be able to reduce their taxable income by writing off certain expenses, especially if they are provided as part of your nanny’s benefits. You’ll want to check with your tax professional for specifics.  

Options could include:  

• Health insurance premiums if you pay for your nanny’s health insurance.  

• Work-related travel or meals may qualify, for example, if your nanny takes your child to a doctor’s appointment or summer camp.  

• Dependent care FSA contributions, while not a tax deduction, can reduce your taxable income.  

Make Tax Time Easier

To take full advantage of savings, make sure to keep detailed records of payments, reimbursements, and any benefits you provide.  

In addition to keeping copies of all payroll records and W-2s, you may also want to:  

• Keep copies of receipts

• Review your eligibility for tax credits and workplace benefits  

• Talk to a tax pro if you’re not sure what may apply to your situation

You Don’t Have to Do It Alone

Streamlining payroll for household employees is possible with an online nanny payroll service. Taking advantage of this type of service can help you save time and eliminate hassle.

SurePayroll can help you simplify the complexities of nanny payroll so you can focus on taking care of the people who take care of your family.

A trusted household payroll provider built for busy families, we can help you with

• State and federal registration for new household employers

• Automated payroll tax calculation, withholding, and filing

• Direct deposit for your nanny

• Year-end forms including W-2s and Schedule H

• Specialized customer support, when and where you need it

Learn more about the peace of mind that comes from working with household payroll specialists at SurePayroll.

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