The Nanny Tax: What Household Employers Need to Know 

Hiring a nanny is a lifesaver for many households, but being a household employer comes with responsibilities that can catch parents off guard. Chief among them? The nanny tax. Not understanding or complying with nanny tax requirements can lead to steep penalties, stress, and confusion down the line. So we’ve created a nanny tax guide. 

In this guide, we’ll explain what the nanny tax is, break down the 2024 and 2025 nanny tax thresholds, discuss how to make payments, and review the importance of maintaining detailed records. Whether you’re a working parent managing household staff or a small business owner handling domestic employment, this is your go-to guide for staying compliant.

If you’re ready to simplify the process and gain peace of mind, let’s dig in!

What Is the Nanny Tax?

The nanny tax refers to federal and state payroll taxes paid by household employers for domestic workers. These taxes apply if you hire a nanny, housekeeper, gardener, or other household employees and pay them above a specific wage threshold annually.

The nanny tax includes several components you may already be familiar with, such as Social Security and Medicare taxes (FICA), federal unemployment tax (FUTA), and sometimes state local taxes. While it sounds complicated, understanding the requirements upfront can significantly simplify compliance and keep you on the right side of tax authorities.

2024 and 2025 Nanny Tax Thresholds

For 2024, the IRS announced that household employers must withhold and pay nanny taxes if they pay a domestic employee $2,500 or more during the year. This represents a slight increase from 2023’s $2,400 threshold.

Here’s what household employers need to know about the thresholds in detail:

• $2,500 Wage Threshold for 2024

If you pay your household employee $2,500 or more during the calendar year, you’re required to withhold FICA taxes (Social Security and Medicare) from their wages and pay your employer share of FICA taxes.

• Federal Unemployment Tax (FUTA)

Household employers must also pay FUTA taxes if they’ve paid $1,000 or more in total cash wages to household employees during any calendar quarter. This requirement hasn’t changed going into 2024, but it’s a critical threshold to remember.

For 2025, tax thresholds are expected to adjust again due to inflation, so staying updated will be key. Bookmark IRS Publication 926 (Household Employer’s Tax Guide) for updates as they are released.

Making Payments

Being a household employer means handling payroll taxes responsibly. Here’s how to streamline the process for paying nanny taxes effectively.

1. Obtain an Employer Identification Number (EIN)

Before making payments, you’ll need to apply for an Employer Identification Number (EIN) through the IRS, as it identifies you as an employer. This can be done quickly and conveniently through the [IRS website](https://www.irs.gov/).

2. Withhold and Pay Social Security and Medicare Taxes (FICA)

Similar to how traditional employers operate, you’re responsible for withholding 7.65% from your household employee’s pay for FICA taxes. You’ll also need to match this amount as the employer’s share.

3. Manage Federal and State Unemployment Taxes (FUTA)

While you don’t deduct FUTA from your employee’s pay, you’re responsible for contributing 6% of the first $7,000 of wages paid to the employee annually. Be sure to check state-specific unemployment tax requirements, as these vary.

4. File Tax Forms and Pay Quarterly

File Schedule H (Household Employment Taxes) when completing your annual income tax return. This consolidates all tax liabilities tied to your nanny. Additionally, make quarterly estimated payments to avoid a large tax bill (or penalties) at year’s end.

Maintain Detailed Records

If there’s one habit that will save you headaches as a household employer, it’s maintaining meticulous payroll records. This isn’t just a good idea—it’s the law. Keeping accurate records ensures compliance and acts as your safety net in case of an audit.

Here’s what to document:

• Employee name, address, and Social Security number
• Total wages paid (including amounts withheld for FICA)
• Copies of all quarterly and annual filings, including Schedule H
• Records of timeliness of tax deposits

Pro tip: Many household employers utilize payroll software or work with payroll service providers to automate record-keeping and ensure filings are completed correctly.

Why Understanding Nanny Taxes Is Essential

Compliance with nanny tax laws isn’t negotiable; the IRS and state tax authorities are clear about enforcement. Skipping nanny tax payments isn’t worth the risk, especially when violations result in fines, tax penalties, and possible back taxes owed. Beyond legal reasons, treating your household employee like a professional by handling their taxes is simply the right thing to do.

On the bright side, staying compliant has benefits of its own. Did you know you may qualify for tax breaks like the Dependent Care Assistance Program (DCAP) or a Child and Dependent Care Tax Credit? These can help you offset the costs when tax season rolls around.

Final Words of Advice (And a Helping Hand)

Managing the nanny tax may feel overwhelming, especially if you’re juggling a busy household or running a business. But you’re not alone. With the right preparation—and perhaps a trusted advisor—compliance becomes a manageable part of your employer responsibilities.

At SD Mayer & Associates, our team specializes in helping household employers, parents, and small business owners simplify tax and payroll matters. We’ll guide you through tax thresholds, filing requirements, and record-keeping best practices so you can focus on what matters most.

Curious about how we can help? Contact us today!