The “Nanny Tax” Rules: What To Do If You Have Household Employees
If you have a household employee, you may need to pay state and federal employment taxes. Which forms do you need to file for your household employees? Is your maid, housekeeper, or babysitter covered by the rules? This Financial Guide provides the answers to these and other questions.
Table of Contents
- Who Is a Household Employee?
- How Do You Verify That an Employee Can Legally Work in the United States?
- Do You Need to Pay Employment Taxes?
- State Unemployment Taxes
- Social Security and Medicare Taxes
- Federal Unemployment Tax (FUTA Tax)
- Do You Need to Withhold Federal Income Tax?
- How Do You Handle the Earned Income Tax Credit?
- How Do You Make Tax Payments?
- What Forms Must You File?
- What Records Must You Keep?
- State Unemployment Tax Agencies
- Household Employers Checklist
This Financial Guide will help you determine whether you have a “household employee,” as defined by the IRS, and, if you do, whether you need to pay federal employment taxes. It explains the rules for determining, paying, and reporting Social Security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA tax), federal income tax withholding, and state unemployment tax for your household employee. It also explains what records you need to keep and how to determine whether state unemployment tax applies.
While many people disregard the need to pay taxes on household employees, they do so at the risk of stiff tax penalties. These rules are complex, and professional tax guidance is highly recommended.
A basic familiarity with these rules will make it easier to work with your tax advisor, potentially save time and reduce tax costs, and help avoid penalties and interest.
Who Is a Household Employee?
The “nanny tax” rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.
A household worker is someone who does work in or around your home. Examples include babysitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.
A household worker is your employee if you can control not only what work is done, but how it is done. It does not matter whether the work is full-time or part-time, whether you hired the worker through an agency, or whether you pay hourly, daily, weekly, or by the job.
If only the worker controls how the work is done, the worker is generally self-employed. A self-employed worker usually provides their own tools and offers services to the public through an independent business. If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.
For example, Emily babysits your child and performs light housework four days a week. She follows your instructions, and you provide the equipment and supplies. Emily is your household employee.
By contrast, Nathan cares for your lawn, provides his own tools and supplies, serves other homeowners, and hires and pays any helpers he needs. Neither Nathan nor his helpers are your household employees.
How Do You Verify That an Employee Can Legally Work in the United States?
It is unlawful to knowingly hire or continue to employ a person who cannot legally work in the United States.
When you hire a household employee to work for you on a regular basis, the employee must complete USCIS Form I-9, Employment Eligibility Verification. You must verify that the employee is a U.S. citizen or is legally authorized to work and complete the employer section of the form. Keep the completed form for your records; do not return it to USCIS.
The original guide refers readers to the USCIS Employer Handbook for Form I-9 and further information. Check the official USCIS website for current forms and instructions.
Do You Need to Pay Employment Taxes?
If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, pay FUTA tax, or do both.
The original guide gives the following historical thresholds:
- Cash wages of $2,800 or more in 2025 ($2,700 or more in 2024) to one household employee may trigger Social Security and Medicare tax obligations, subject to exceptions.
- Cash wages totaling $1,000 or more in a calendar quarter during the current or preceding year may trigger FUTA tax obligations.
- The combined Social Security and Medicare tax rate described in the guide is generally 15.3%, split into 7.65% for the employer and 7.65% for the employee.
- The guide describes a 6.0% FUTA rate that may be reduced to 0.6% through an available tax credit, with the first $7,000 of wages per employee generally considered.
Wages paid to certain family members and some workers under age 18 may be excluded under the rules described in the guide. State unemployment taxes may also apply.
You generally are not required to withhold federal income tax from household employee wages. However, you may agree to do so if the employee requests it.
The guide also discusses a possible dependent-care tax credit for qualifying expenses. Eligibility and credit amounts depend on the applicable tax rules.
State Unemployment Taxes
Contact your state unemployment tax agency to determine whether you must pay state unemployment tax for your household employee. You should also determine whether other state employment taxes or workers’ compensation insurance requirements apply.
If you do not need to pay Social Security, Medicare, or FUTA tax and do not choose to withhold federal income tax, the remaining sections of the original guide may not apply to your situation.
Social Security and Medicare Taxes
The original guide explains that employers may need to withhold Additional Medicare Tax of 0.9% on an employee’s wages exceeding $200,000 in a calendar year. It also describes the standard Social Security and Medicare tax shares for employers and employees.
You are responsible for paying both your share and the employee’s share of applicable taxes. You may withhold the employee’s share from wages or pay it from your own funds, subject to the applicable rules.
Social Security and Medicare Wages
The guide states that, when the applicable wage threshold is met, cash wages up to the annual Social Security wage base are subject to Social Security tax, while cash wages are generally subject to Medicare tax. It cites historical wage bases of $176,100 for 2025 and $168,600 for 2024.
Wages Not Counted
The guide lists certain exceptions involving wages paid to a spouse, a child under age 21, a parent, or an employee under age 18. Special circumstances can affect these exceptions.
It also describes certain non-cash benefits, meals, lodging, transit benefits, and parking reimbursements that may be excluded from wages under the conditions and limits specified in the applicable rules.
Withholding the Employee’s Share
The guide explains that an employer generally withholds the employee’s share of Social Security and Medicare taxes when the applicable wage threshold is expected to be met. It gives an example involving a $100 weekly wage payment and a 7.65% employee share.
If too little tax is withheld, additional tax may need to be withheld from a later payment. If too much is withheld, the employee should generally be repaid.
Not Withholding the Employee’s Share
If you pay the employee’s share of Social Security and Medicare taxes from your own funds, the guide explains that the amount paid on the employee’s behalf may need to be included in the employee’s wages for income tax purposes.
Federal Unemployment Tax (FUTA Tax)
FUTA is part of the federal and state unemployment compensation system. Depending on your circumstances, you may owe both federal and state unemployment taxes or only one of them.
The guide describes a 6.0% FUTA rate and a potential credit of up to 5.4%, which could reduce the effective rate to 0.6%. The credit may be affected by state contribution payments and other rules.
Under the historical rules described, the first $7,000 of cash wages paid to each household employee may be subject to FUTA when total household employee wages reach the relevant quarterly threshold in the current or preceding year.
The guide excludes certain wages paid to a spouse, a child under age 21, or a parent. It also provides examples of how FUTA tax may be calculated.
Do You Need to Withhold Federal Income Tax?
You generally are not required to withhold federal income tax from wages paid to a household employee. If the employee asks you to withhold it and you agree, the employee must provide the applicable Form W-4.
Wages
The guide explains that federal income tax withholding may apply to both cash and non-cash wages, based on the value of non-cash items. It describes exclusions for certain meals, lodging, transit benefits, and parking benefits, subject to applicable conditions and limits.
Paying Tax without Withholding
If you pay federal income tax for your employee without withholding it from the employee’s wages, the amount may need to be included in the employee’s wages for federal income tax purposes and may also count as Social Security, Medicare, and FUTA wages.
How Do You Handle the Earned Income Tax Credit (EITC)?
Certain workers may qualify for the Earned Income Tax Credit on their federal income tax return. Employers may need to provide a notice about the credit in specified circumstances.
Notice about the EITC
The original guide explains that the employee’s copy of Form W-2 contains information about the EITC. It describes circumstances in which a separate notice may be required and refers to IRS Notice 797 as one possible source of the required information.
The guide includes historical wage figures and deadlines. Verify current requirements before relying on those figures.
How Do You Make Tax Payments?
The guide explains that household employment taxes may be reported using Schedule H, Household Employment Taxes, attached to the federal income tax return. The tax is added to the amount owed with the return, subject to the applicable filing rules and deadlines.
Asking for More Federal Income Tax Withholding
An employee may ask their employer to withhold additional federal income tax by submitting a new Form W-4. A person receiving a pension or annuity may ask the payer to increase withholding using the applicable form.
Paying Estimated Tax
The guide refers to Form 1040-ES for estimated tax payments and lists historical installment dates. Confirm the current tax year’s payment deadlines with the IRS.
Payment Option for Business Employers
Eligible sole proprietors and certain farm operators may be able to pay household employment taxes alongside their business or farm employment taxes. The guide references Forms 941, 943, and 940 for reporting applicable taxes.
What Forms Must You File?
The guide explains that certain forms may be required when you pay Social Security and Medicare wages, FUTA wages, or wages from which federal income tax is withheld.
Employer Identification Number (EIN)
An EIN is a nine-digit number issued by the IRS. The guide directs household employers who need an EIN to Form SS-4, Application for Employer Identification Number.
Form W-2
The guide explains that a separate Form W-2 may be required for each household employee who meets the applicable wage threshold or has wages subject to federal income tax withholding. It describes providing employee copies and submitting the relevant forms to the Social Security Administration.
Schedule H
Schedule H is used to report household employment taxes in the circumstances described in the guide. It is generally filed with the federal income tax return, subject to applicable requirements.
Business Employment Tax Returns
When household employment taxes are reported with business or farm employment taxes, the guide discusses Forms 941, 943, and 940, along with the related W-2 and W-3 reporting requirements.
What Records Must You Keep?
Keep copies of Schedule H and other employment tax forms filed, along with related Forms W-2, W-3, W-4, and W-5 where applicable. Maintain records supporting the information reported on those forms.
Wage and Tax Records
For each payday, the guide recommends recording the date and amounts of:
- Cash and non-cash wages paid to the employee.
- Employee Social Security tax withheld or paid on the employee’s behalf.
- Employee Medicare tax withheld or paid on the employee’s behalf.
- Federal income tax withheld.
- State employment taxes withheld.
Employee’s Social Security Number
Where required, maintain the employee’s name and Social Security number as shown on their Social Security card. The guide explains that the number should be requested no later than the first day wages are paid.
How Long To Keep Records
The original guide states that employment tax records should be kept for at least four years after the tax return due date or the date the taxes were paid, whichever is later.
State Unemployment Tax Agencies
The original guide includes contact information for state unemployment tax agencies across the United States, including Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, the Virgin Islands, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Because agency addresses and contact numbers may change, consult the relevant official state agency website for current contact information.
Household Employers Checklist
You may need to complete the following steps when you have a household employee:
- Find out whether the person can legally work in the United States.
- Determine whether state taxes apply.
- Withhold Social Security and Medicare taxes when required.
- Withhold federal income tax if the employee requests it and you agree.
- Decide how to make tax payments.
- Keep the required records.
By January 31, under the historical deadlines described in the guide:
- Obtain an EIN if needed.
- Give the employee the required copies of Form W-2.
- Send Copy A of Form W-2 to the Social Security Administration.
By the applicable April filing deadline:
- File Schedule H with your tax return when required.
Important: This guide concerns United States federal and state tax rules. The source includes historical figures and deadlines, and this HTML version does not replace verification against current IRS and state guidance. Consult a qualified tax professional before relying on the information.
