Key takeaways
What this article covers, in order:
- Is your nanny your employee?
- The 2026 household employer thresholds
- Worked example: a Raleigh family's 2026 nanny taxes
- Your household employer calendar
- What nanny payroll services do, and what stays with you
- Common nanny tax mistakes
If you pay a nanny cash wages of $3,000 or more in 2026, you are a household employer: you must withhold and pay Social Security and Medicare tax on those wages, report them on Schedule H with your own Form 1040, and give your nanny a Form W-2. If you pay $1,000 or more in total cash wages to household employees in any calendar quarter, you also owe federal unemployment (FUTA) tax.
Families often find this out late, usually when a nanny applies for a mortgage or unemployment benefits. Getting it right is not complicated once you see the pieces. Figures below are for 2026 from IRS Publication 926 unless noted.
Is your nanny your employee?
A worker is your household employee if you can control not only what work is done but how it is done. It does not matter whether they work full time or part time, or whether you pay by the hour, week or job. A nanny who works in your home on your schedule, following your rules for the children, is almost always an employee.
The worker is not your employee in two situations:
- Self-employed: only the worker controls how the work is done, and usually provides their own tools and offers services to the public as an independent business.
- Agency-provided: an agency supplies the worker and controls what work is done and how. The agency is then the employer.
Calling your nanny an independent contractor and handing over a Form 1099 does not change their status. If the IRS later decides they were your employee, you are generally liable for the employment taxes you should have paid, plus interest and penalties.
The 2026 household employer thresholds
Social Security and Medicare: $3,000
- If you pay one household employee cash wages of $3,000 or more in 2026, all cash wages to that person for the year count, up to the $184,500 Social Security wage base. All cash wages count for Medicare, with no cap.
- The rate is 6.2% Social Security plus 1.45% Medicare for you, and the same 7.65% for your employee. You can withhold the employee's share from pay or choose to pay it yourself.
- Under $3,000 for the year, neither of you owes Social Security or Medicare tax on that person's wages.
- If wages to one employee pass $200,000 in a year, you also withhold 0.9% Additional Medicare Tax on the excess.
Federal unemployment tax: $1,000 in a quarter
- FUTA applies if you pay total cash wages of $1,000 or more to all household employees in any calendar quarter of 2025 or 2026.
- The tax is 6.0% on the first $7,000 of each employee's wages for the year. A credit of up to 5.4% for state unemployment contributions usually brings the net rate to 0.6%, provided you pay your state contributions for 2026 by April 15, 2027 and your state is not a credit reduction state.
Federal income tax: only if your nanny asks
You are not required to withhold federal income tax from a household employee. If your nanny asks and you agree, have them complete Form W-4 and withhold based on it.
Who you do not count
Wages paid to your spouse, your child under 21, or your parent are not counted for Social Security and Medicare (with a narrow exception for a parent who cares for your young child in certain family situations), and none of those three count for FUTA. Wages paid to an employee under 18 at any time in the year also are not counted for Social Security and Medicare, unless household work is that person's principal occupation. A student babysitter's work is not treated as a principal occupation.
Worked example: a Raleigh family's 2026 nanny taxes
The Okafor family in Raleigh hires a nanny at $22 an hour, 30 hours a week, for 50 weeks of 2026. She is 26 and unrelated to them.
- Annual cash wages: $22 × 30 × 50 = $33,000. That is over $3,000, so Social Security and Medicare apply, and well over $1,000 in a quarter, so FUTA applies.
- Weekly gross pay: $22 × 30 = $660.
- Withheld from each paycheck: Social Security $660 × 6.2% = $40.92; Medicare $660 × 1.45% = $9.57. Total $50.49, so her weekly pay before any optional income tax withholding is $609.51.
- Employee share for the year: $33,000 × 7.65% = $2,524.50, withheld from her pay.
- Employer share for the year: another $2,524.50, which the Okafors pay from their own funds.
- FUTA: $7,000 × 0.6% = $42, assuming they pay their state unemployment contributions on time and no credit reduction applies.
- Total federal amount due with Schedule H: $2,524.50 + $2,524.50 + $42 = $5,091, of which $2,566.50 is the family's own cost. State unemployment contributions come on top.
The Okafors should not wait until April 2027 to pay all of this. They can raise the withholding at their own jobs with a new W-4, or add the amount to quarterly estimated tax payments, due April 15, June 15 and September 15, 2026, and January 15, 2027.
Your household employer calendar
- On hiring: your nanny completes the employee section of Form I-9 no later than her first day of work, and you complete the employer section by examining her documents; you keep the form, you do not send it anywhere. Get an employer identification number (EIN) if you do not already have one, since the IRS requires an EIN, not your Social Security number, on the forms you file for a household employee. Record your nanny's name and Social Security number exactly as they appear on her Social Security card. Register with your state for unemployment and any state withholding.
- Each payday: record the date, cash and noncash wages, and the Social Security, Medicare and any income tax withheld.
- By February 1, 2027: give your nanny Copies B, C and 2 of her 2026 Form W-2, and file Copy A with Form W-3 with the Social Security Administration.
- By April 15, 2027: file Schedule H with your 2026 Form 1040. An extension for your return also extends Schedule H. If you do not otherwise need to file a return, you file Schedule H by itself.
- Keep records for at least 4 years after the due date of the return reporting the taxes, or the date paid if later.
What nanny payroll services do, and what stays with you
A nanny payroll service calculates each paycheck, handles withholding, pays deposits, registers you with your state, and prepares the W-2 and the figures for Schedule H. For families with a full-time nanny in a state with its own payroll taxes, that can save real time.
What a service cannot take over is responsibility. The IRS states that you remain responsible for filing and paying even if a third party fails to do it. Choose a provider that gives you access to deposit confirmations, and check them.
Common nanny tax mistakes
- Paying "off the books", which leaves your nanny without Social Security credits or unemployment coverage, and leaves you with back taxes if it surfaces.
- Forgetting state obligations, such as unemployment insurance, state withholding and workers' compensation rules, which vary by state.
- Counting the wrong wages: the $3,000 test is per employee and uses cash wages; noncash wages like meals are not Social Security or Medicare wages.
- Missing the dependent care credit. If your nanny cares for a child under 13 so you can work, the wages and your share of employment taxes can count toward the child and dependent care credit; see Publication 503.
Business owners: keep household payroll out of the business books
If you own a business with its own employees, the IRS lets you pay your household employment taxes along with your business payroll deposits and report them on your business Form 941 and Form 940 instead of Schedule H. That is a payment convenience, not a business deduction: a nanny's wages are a personal family expense. If you run business payroll through HelloTime (TimeX), the HelloBooks sister product that syncs payroll into HelloBooks, and choose that option, record the household portion in HelloBooks against your owner's draw account rather than wage expense, so your Schedule C or entity return is not overstated. HelloBooks does not run payroll itself, and it does not prepare Schedule H.
This is general information on 2026 federal household employer rules as of November 2026, not tax or legal advice; check IRS Publication 926, your state's labor and tax agencies, or a CPA for your household.
