If you pay a nanny or household employee $2,700+ in 2026, you owe FICA taxes (15.3% split equally between you and the employee) plus FUTA (usually $42/employee). Report everything on Schedule H with your personal tax return by April 15. Federal income tax withholding is optional but recommended.
- FICA threshold: $2,700 per employee for 2026
- Employer cost adds roughly 8-10% on top of gross wages
- Paying legally unlocks tax credits worth up to $2,100
What Are Nanny Taxes?
“Nanny taxes” is an informal term for the federal and state employment taxes you must pay when you hire a household employee—such as a nanny, housekeeper, senior caregiver, or private nurse—who meets certain wage thresholds.
Unlike a traditional employer who handles all the paperwork automatically, as a household employer you're responsible for calculating, withholding, and remitting these taxes yourself—or using a service like PAYHROLL to handle it for you.
2026 Nanny Tax Thresholds
Not every household worker triggers tax obligations. The IRS sets annual thresholds that determine when you become a household employer. For 2026:
| Tax Type | 2026 Threshold | Applies To |
|---|---|---|
| Social Security & Medicare (FICA) | $2,700/year | Per employee |
| FUTA | $1,000/quarter | Total to all employees |
| Federal Income Tax Withholding | No threshold | Optional (per W-4) |
The $2,700 FICA threshold is per employee. If you pay one nanny $2,000 and a housekeeper $2,000, neither triggers FICA. But the $1,000 FUTA threshold applies to total wages across all household employees in any calendar quarter.
The threshold increases slightly each year with inflation. For 2025 it was $2,600, and for 2024 it was $2,500. Always verify the current year's threshold at IRS.gov.
Federal Income Tax Withholding
Unlike FICA taxes, federal income tax withholding from your household employee's wages is optional. However, both you and your nanny may prefer it for several reasons:
How to Set Up Withholding
Have your employee complete Form W-4
Use the IRS withholding tables or calculator
Withhold from each paycheck
Report with your other employment taxes
Your nanny will need to make quarterly estimated tax payments to the IRS using Form 1040-ES. Missing these payments can result in underpayment penalties for your employee.
Federal Unemployment Tax (FUTA)
FUTA is an employer-only tax that funds unemployment benefits. You owe FUTA if you pay $1,000 or more in any calendar quarter to household employees.
| FUTA Detail | Amount |
|---|---|
| Gross rate | 6.0% on first $7,000 of wages |
| State credit | Up to 5.4% |
| Effective rate | Usually 0.6% |
| Max per employee | $42/year |
Most employers pay the effective 0.6% rate because they also pay state unemployment taxes, earning the full 5.4% credit. FUTA is calculated and reported on your annual tax return using Schedule H—there are no quarterly FUTA deposits required for household employers.
If your state has an outstanding federal unemployment loan balance, the 5.4% credit may be reduced, increasing your effective FUTA rate. Check the IRS credit reduction list each November for affected states.
State Tax Requirements
Every state has different requirements for household employers. You'll need to register with your state's employment department and obtain a state employer identification number.
“Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you still owe SUTA but skip state income tax withholding.
PAYHROLL handles state registration and compliance automatically, ensuring you meet all your state's specific requirements.
How to Pay Nanny Taxes
As a household employer, you have three options for paying your employment taxes throughout the year to avoid underpayment penalties:
Increase Your Own W-4 Withholding
Make Quarterly Estimated Payments
Use a Payroll Service
Filing Schedule H
Schedule H (Form 1040) is the annual return used to report household employment taxes. It's filed with your personal income tax return by April 15.
| What Schedule H Reports | Details |
|---|---|
| Social Security & Medicare | Employer + employee share of FICA |
| Federal Income Tax Withheld | Amount withheld from employee wages |
| FUTA Tax | 0.6% on first $7,000 per employee |
| Total Household Taxes Owed | Sum of all lines above |
Other Required Forms
| Form | Purpose | Deadline |
|---|---|---|
| W-2 | Wage and tax statement for employee | January 31 |
| W-3 | Transmittal to Social Security Administration | January 31 |
| Schedule H | Report household employment taxes with Form 1040 | April 15 |
| State forms | Vary by state (SUI, income tax, disability) | Varies |
You must provide Form W-2 to your employee and file copies with the SSA by January 31. Late W-2s carry penalties of $60-$310 per form depending on how late they are filed.
Tax Benefits for Employers
Paying your nanny legally unlocks significant tax benefits that can offset much of the additional cost. Here are the three main advantages:
Child and Dependent Care Tax Credit
Dependent Care FSA
Employer FICA Tax Deduction
“Between the tax credit, FSA savings, and FICA deduction, families can recover $3,000-$5,000 or more annually—often exceeding the employer tax cost entirely.
Common Mistakes to Avoid
Avoid these common pitfalls that trip up household employers every year:
Nannies are almost always W-2 employees. The IRS classifies them as employees because you control when, where, and how the work is done. Misclassification can result in back taxes, penalties of 1.5% of wages plus 40% of the employee's FICA taxes, and interest. See our guide on W-2 vs 1099 classification.
Paying off the books exposes you to IRS penalties, back taxes, and interest. It also denies your nanny Social Security credits, unemployment benefits, and workers' compensation coverage. If audited, you could owe years of back taxes plus penalties.
Late W-2 filings carry penalties of $60-$310 per form. Late Schedule H filing triggers failure-to-file penalties (5% per month up to 25%) and failure-to-pay penalties (0.5% per month). Interest accrues on all unpaid amounts. For a full list of deadline traps and how to avoid them, see our guide on payroll mistakes to avoid.
Each state has unique registration, filing, and payment requirements for household employers. Many states require quarterly SUTA filings, new hire reporting within 20 days, and workers' compensation insurance. Missing state requirements carries separate penalties on top of federal ones.
Frequently Asked Questions
PAYHROLL Team
Payroll Experts
Every article is researched and reviewed by our editorial team with expertise in IRS compliance, household employment law, and small business payroll. We fact-check against IRS publications and update content when tax rules change.
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Social Security and Medicare Taxes
Once you cross the $2,700 threshold, you must withhold and pay Social Security and Medicare taxes (collectively called FICA taxes) on all wages paid to that employee during the year.
You can choose to pay both the employee and employer shares of FICA yourself as a benefit to your nanny (called “grossing up”). The amount you pay on their behalf becomes taxable income to them on their W-2, but it is not subject to additional FICA or FUTA.