Nanny Tax Rules & Employer FAQ Guide

Home “Nanny Tax” Rules: FAQ

Nanny tax rules cover the payroll taxes and reporting obligations families face when they pay household employees (nannies, babysitters, caregivers). For 2025 the federal threshold for treating someone as a household employee is $2,800 in cash wages (if you reach that amount you generally must withhold Social Security and Medicare taxes), and you’ll usually report household employment taxes on Schedule H (Form 1040). Employers must also provide a Form W-2 to the worker (and obtain an EIN if they need to file) and check state requirements because state unemployment and payroll rules vary. Care.com +4

What kinds of household workers are covered by nanny tax rules?

Household workers include anyone who does work in or around your home such as babysitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers. In addition, the worker must be your employee, which means 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, or that you hired the worker through an agency. On the other hand, if only the worker can control how the work is done, the worker is not your employee, but is self-employed.

What must I do if I think my worker or worker-to-be isn't a U.S. citizen?

It is unlawful for a household employer to knowingly hire or continue to employ an individual who cannot legally work in the United States. Under federal nanny tax rules and immigration law, when you hire a household employee such as a nanny, babysitter, or caregiver on a regular basis, he or she must complete the employee section of the Form I-9 (Employment Eligibility Verification). As the employer, you are required to verify that the worker is either a U.S. citizen or an authorized alien who can legally work, and then complete your section of the form. Keeping this documentation for your records is part of proper payroll compliance and helps ensure you meet IRS and legal requirements when managing household employment.

What are my tax duties if I have a household employee?

You may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax, or you may need to do both.

If I hire teenagers as babysitters or for yard work, must I withhold and pay tax for them?

When figuring whether you paid an employee $2,800 or more in 2025 ($2,700 or more in 2024) to babysitters or others, you generally don’t count wages paid to an employee who is under age 18 at any time during the year.

If the employee is a student, providing household services is not considered his or her principal occupation. However, you should count these wages if providing household services is the employee’s principal occupation.

Are there ways to pay my household employee that minimize the employment tax?

Wages subject to employment tax do not include the value of food, lodging, clothing, and other non-cash items you give your household employee. However, cash you give your employee in place of these items is included in wages.

If you reimburse the amount your employee pays to commute to your home by public transit (bus, train, etc.), do not count reimbursements up to $325 per month in 2025 ($315 per month in 2024) as wages.

Further, if you reimburse your employee for the cost of parking at or near a location from which your employee commutes to your home, do not count reimbursements up to $325 per month in 2025 ($315 per month in 2024) as wages.

I'm not sure yet whether I'll pay enough this year to require withholding. What should I do?

You should withhold the employee’s share of Social Security and Medicare taxes if you expect to pay your household employee Social Security and Medicare wages of $2,800 or more in 2025 ($2,700 or more in 2024).

If you withhold the taxes but then actually pay the employee less than $2,800 in 2025 ($2,700 in 2024) in Social Security and Medicare wages for the year, you should repay the employee.

Okay, I've withheld tax on the employee and I owe the employer's share. How do I pay these amounts?

You pay withheld taxes as part of your regular income tax obligation. You don’t deposit them periodically. If you make an error by withholding too little, you should withhold additional taxes from a later payment. If you withhold too much, you should repay the employee.

Do I have to reduce the worker's take-home pay by the tax on that pay?

As a household employer under federal nanny tax rules, you may choose to pay your employee’s Social Security and Medicare taxes out of your own funds rather than withholding them directly from the employee’s wages. When you do this, the portion of taxes you cover must be included in the employee’s wages for IRS income tax reporting. However, these amounts are not considered Social Security and Medicare wages, nor are they treated as federal unemployment (FUTA) wages. This option can simplify payroll but still requires careful recordkeeping to stay compliant with IRS guidelines and household employment tax regulations.

In what cases do I owe unemployment tax?

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You may owe only the FUTA tax or only the state unemployment tax, or both. To find out whether you will owe state unemployment tax, contact your state’s unemployment tax agency.

If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of the current calendar year or the prior year, the first $7,000 of cash wages you pay to each household employee in the current calendar year are FUTA wages. If you pay less than $1,000 cash wages in each calendar quarter of the current calendar year but you had a household employee in the prior calendar year, the cash wages you pay in the current calendar year may still be FUTA wages. They are FUTA wages if the cash wages you paid to household employees in any calendar quarter of the current calendar year or the prior year totaled $1,000 or more.

Do not withhold the FUTA tax from your employee’s wages. You must pay it from your own funds.

Do I need to withhold federal income tax?

You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4, Employee’s Withholding Allowance Certificate. If you agree to withhold federal income tax, you are responsible for paying it to the IRS.

You figure federal income tax withholding on both cash and non-cash wages you pay. Measure non-cash wages by the value of the non-cash item. Do not count as wages any of the following items:

Meals provided at your home for your convenience.
Lodging provided at your home for your convenience and as a condition of employment.
Up to $325 per month in 2025 ($315 per month in 2024) for bus or train tokens (passes) you give your employee, or in some cases for cash reimbursement you make for the amount your employee pays to commute to your home by public transit.
Up to $325 per month in 2025 ($315 per month in 2024) to reimburse your employee for the cost of parking at or near your home or at or near a location from which your employee commutes to your home.

Any income tax you pay for your employee without withholding it from the employee’s wages must be included in the employee’s wages for federal income tax purposes. It is also counted as Social Security, Medicare, and FUTA wages.

What about Earned Income Credit (EIC)? What must I do?

Under nanny tax rules, certain household employees may qualify for the Earned Income Credit (EIC) on their federal income tax return. This valuable credit can reduce the amount of tax owed—or even result in a refund payment from the IRS if no tax is due. As a household employer, you are required to provide your employee with an EIC notice if you withhold federal income tax and the IRS withholding tables show that no tax should be withheld. Even if it is not mandatory, it is recommended that you give this notice whenever your employee’s annual wages fall below $68,675 in 2025 ($66,819 for 2024). Doing so helps you stay compliant while ensuring employees are aware of potential tax benefits available to them.

What federal tax forms must I file if I have a household employee?

Form W-2 and Schedule H of Form 1040. Specifically:

A separate Form W-2, Wage and Tax Statement, must be filed for each household employee to whom you pay Social Security and Medicare wages or wages from which you withhold federal income tax. Give Copies B, C, and 2 to your employee by January 31, and send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration by January 31.
Use Schedule H (Form 1040), Household Employment Taxes, to report the federal employment taxes for your household employee if you pay the employee Social Security and Medicare wages, FUTA wages, or wages from which you withhold federal income tax.
File Schedule H with your federal income tax return. If you are not required to file a tax return, file Schedule H by itself.

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