Nanny Payroll: How to Pay Household Employees and Handle Payroll Taxes

Paying a nanny in cash, off the books, feels simpler right up until it isn’t, whether that’s a tax notice, a workers’ compensation claim, or a nanny who needs proof of income for a mortgage application.

If you pay a household employee, such as a nanny, $3,000 or more in cash wages during 2026, you’re legally considered a household employer and must withhold and pay Social Security and Medicare taxes, commonly called “nanny taxes.” Here’s what that actually involves.

Who counts as a household employee

You’re a household employer if you control what work is done and how it’s done, regardless of the specific title. This includes:

• Nannies and babysitters

• Housekeepers

• Private cooks or chefs

• Home health aides and caregivers

• Gardeners, if they work regularly and directly for you rather than through a landscaping company

The key test is control. If you set the schedule, direct the tasks, and provide the tools, the worker is your employee, not an independent contractor, regardless of what any informal agreement says.

The 2026 nanny tax thresholds

Two separate dollar thresholds determine your obligations:

Both thresholds are for cash wages, and both adjust periodically, so the household employer test needs to be checked against the current year’s figures.

These thresholds don’t apply to wages paid to your spouse, your child under 21, your parent, or an employee under 18 whose primary occupation isn’t household work, such as a student babysitting part-time.

What you actually owe

Assuming you’ve crossed the $3,000 FICA threshold, here’s the full breakdown for 2026:

The employee’s 7.65% FICA share is typically withheld from their pay. The employer’s matching 7.65% is an additional cost you pay directly, on top of the nanny’s wages.

“Grossing up” the nanny’s pay

Many families choose to pay the employee’s FICA share themselves, so the agreed weekly rate is exactly what lands in the nanny’s account, rather than reducing it by the withheld amount. This is legal, but it has a side effect: the amount you cover on the nanny’s behalf becomes additional taxable wages, which slightly increases the underlying FICA and FUTA calculation. It’s a convenience, not a way to reduce the total tax owed.

Setting up as a household employer

Before your first payroll run, you’ll need:

• An EIN, obtained from the IRS specifically for household employment purposes

• A completed Form I-9 and Form W-4 from your nanny (federal income tax withholding is optional unless both parties agree to it)

• Registration with your state’s labor department, since most states require state unemployment insurance for household employers as well

Filing nanny taxes

Unlike a typical business, household employers generally report and pay nanny taxes through Schedule H, filed with your personal federal income tax return, rather than quarterly Form 941 filings. This makes household payroll one of the few payroll categories where taxes are trued up annually rather than deposited throughout the year, though estimated quarterly payments are often still recommended to avoid an underpayment penalty at filing time.

You’ll also issue a Form W-2 to your nanny by January 31, the same as any other employer would.

State-specific requirements

• Overtime rules under the Fair Labor Standards Act require nannies to be paid 1.5 times their regular rate for hours worked over 40 in a workweek.
  
  

• Workers’ compensation insurance requirements for household employers vary significantly by state, some require coverage immediately, others only after a certain number of hours worked.
  
  

• Many states and cities have minimum wage rates well above the federal minimum, and household employers are required to pay whichever rate is highest.

Why this matters beyond compliance

Paying nanny taxes correctly isn’t only about avoiding IRS penalties. It gives your nanny access to Social Security credits, unemployment benefits if the job ends, and verifiable income for things like loan applications. For many families, that’s reason enough on its own, separate from the legal requirement.

Household payroll has more moving pieces than people expect going in, but the process itself follows the same core logic as any other payroll: track wages, withhold correctly, file on time.

Household payroll has its own thresholds, its own Schedule H filing, and its own risk of getting it wrong. PayWow handles nanny tax calculations, W-2 filing, and household employer setup, so paying a nanny legally doesn't mean becoming your own payroll department.