Explain My Paycheck

How does payroll work for household employees (nannies)?

Special Situationsadvanced3 answers · 7 min readUpdated February 28, 2026

Quick Answer

Household employers must withhold Social Security and Medicare taxes (15.3% total) if they pay any household employee $2,700+ in 2026. They don't have to withhold income taxes but must pay federal and state unemployment taxes, file Schedule H with their tax return, and provide W-2s. The "nanny tax" threshold triggers at $2,700 annually per employee.

Best Answer

SC

Sarah Chen, Payroll Tax Analyst

Families who employ nannies, housekeepers, or other domestic workers and need to understand their employer tax obligations

Top Answer

When household employer rules apply


You become a household employer subject to "nanny tax" rules if you pay any household employee $2,700 or more in 2026. This includes nannies, housekeepers, gardeners, private nurses, or drivers who work in or around your home.


Threshold calculation example:

  • Nanny earning $15/hour × 4 hours/week × 52 weeks = $3,120/year
  • Result: You're a household employer (over $2,700 threshold)
  • Housekeeper earning $200/month × 12 months = $2,400/year
  • Result: No household employer obligations (under $2,700 threshold)

  • Required tax withholding and payments


    Social Security and Medicare taxes (FICA):

  • Employee pays: 6.2% Social Security + 1.45% Medicare = 7.65%
  • Employer pays: 6.2% Social Security + 1.45% Medicare = 7.65%
  • Total FICA: 15.3% of wages

  • Federal income tax withholding:

  • Not required unless employee requests it
  • If requested, follow normal W-4 withholding rules
  • Many families skip this to simplify payroll

  • Federal unemployment tax (FUTA):

  • Employer pays 6.0% on first $7,000 of wages per employee
  • Reduced to 0.6% if you pay state unemployment tax on time
  • Annual cost: $42 per household employee (0.6% × $7,000)

  • Real-world example: Full-time nanny


    The Johnson family pays their nanny $20/hour for 40 hours/week:



    The family's actual cost is $3,424 more than the nanny's gross wages due to employer taxes.


    State-specific requirements


    Most states require additional obligations:


    State unemployment insurance (SUI):

  • Rates vary from 0.1% to 6%+ of wages
  • Most new household employers pay 2-3% on first $7,000-$15,000
  • Some states have higher wage bases (California: $7,000, Hawaii: $58,500)

  • Workers' compensation:

  • Required in some states for household employees
  • Optional in others but recommended for liability protection
  • Cost: typically $200-$800/year depending on coverage

  • State disability insurance:

  • Required in CA, HI, NJ, NY, RI, WA
  • Usually split between employer and employee
  • Example: California SDI is 0.9% of wages (employee pays)

  • Filing and reporting requirements


    Schedule H (Form 1040):

  • File annually with your personal tax return
  • Reports all household employee wages and taxes
  • Pay any taxes owed with your return (or make quarterly payments)

  • Form W-2:

  • Provide to each household employee by January 31
  • File Copy A with Social Security Administration by January 31
  • Include all wages and taxes withheld

  • Form W-3:

  • Summary form filed with W-2 Copy A
  • Totals all household employees' wages and taxes

  • Payment timing and quarterly estimates


    You have two options for paying household employment taxes:


    Option 1: Pay annually

  • Include taxes owed on Schedule H with your tax return
  • Risk underpayment penalties if you owe $1,000+

  • Option 2: Pay quarterly

  • Make estimated tax payments including household employment taxes
  • Safer option for families with high-earning household employees
  • Use Form 1040-ES

  • Common mistakes to avoid


    Treating employees as independent contractors:

  • IRS applies strict control tests for household workers
  • If you control when, where, and how work is done, they're employees
  • Misclassification can result in back taxes plus penalties

  • Forgetting state requirements:

  • Focus only on federal obligations and miss state unemployment/disability
  • Each state has different forms, deadlines, and payment methods

  • Cash payments without records:

  • Keep detailed records of all wages paid
  • Bank records, pay stubs, or payment apps create paper trails
  • Cash payments are legal but must still be reported

  • What families should do


    1. Calculate if you meet the $2,700 threshold before hiring

    2. Get an Employer Identification Number (EIN) from the IRS

    3. Verify employee eligibility using Form I-9

    4. Set up payroll records to track wages, taxes, and payments

    5. Research your state's requirements for unemployment, disability, and workers' comp

    6. Consider payroll software or professional service for complex situations


    Key takeaway: Household employers paying $2,700+ annually must withhold and pay 15.3% FICA taxes, file Schedule H with their tax return, provide W-2s, and usually pay state unemployment taxes. The total employer cost is typically 8-12% more than the employee's gross wages.

    Key Takeaway: Household employers must pay 15.3% FICA taxes on wages over $2,700 annually, plus federal unemployment (0.6%) and state requirements, making their total cost 8-12% above the employee's gross wages.

    Tax obligations for household employers vs. household employees

    Tax TypeEmployer ResponsibilityEmployee ResponsibilityThreshold/Rate
    Social SecurityPay 6.2% + withhold 6.2%Pay 6.2% via withholding$2,700+ annual wages
    MedicarePay 1.45% + withhold 1.45%Pay 1.45% via withholding$2,700+ annual wages
    Federal IncomeOptional withholdingRequest withholding or pay quarterlyIf requested by employee
    Federal UnemploymentPay 0.6% of first $7,000No responsibility$1,000+ quarterly wages
    State UnemploymentPay rate varies by stateNo responsibilityVaries by state

    More Perspectives

    SC

    Sarah Chen, Payroll Tax Analyst

    Regular employees who are considering household work or want to understand how their household worker situation differs from regular employment

    How household employment differs from regular jobs


    If you work as a nanny or housekeeper, your paycheck situation is quite different from a typical W-2 job:


    Tax withholding differences:

  • Your employer doesn't have to withhold income taxes (but may if you ask)
  • Social Security and Medicare taxes are still required if you earn $2,700+
  • No automatic state income tax withholding in most cases

  • This means larger tax bills: If your household employer isn't withholding income taxes, you'll likely owe money when filing your tax return or need to make quarterly estimated payments.


    Example comparison:

    Regular job earning $35,000:

  • Federal income tax withheld: ~$2,400
  • FICA taxes: $2,678
  • Take-home: ~$29,922

  • Household job earning $35,000 (no income tax withholding):

  • Federal income tax withheld: $0
  • FICA taxes: $2,678
  • Take-home: ~$32,322
  • Tax owed at filing: ~$2,400

  • What to do as a household employee


    1. Ask your employer to withhold income taxes if you'll owe more than $1,000

    2. Make quarterly estimated tax payments if income tax isn't withheld

    3. Keep records of all wages and taxes paid

    4. Understand you may not qualify for unemployment benefits in all states

    Key Takeaway: Household employees often have no income tax withheld from paychecks, creating larger tax bills at filing time unless they request withholding or make quarterly payments.

    SC

    Sarah Chen, Payroll Tax Analyst

    Domestic workers, caregivers, or others working in household employment who need to understand their rights and tax obligations

    Rights and protections for household workers


    Household employees have specific legal protections that vary by state:


    Federal protections:

  • Minimum wage and overtime (if working for multiple families totaling 8+ hours/week)
  • Social Security and Medicare coverage
  • Right to receive W-2 forms

  • State variations:

  • Some states extend full labor law protection to domestic workers
  • Others have limited coverage for household employees
  • A few states have specific domestic worker bills of rights

  • Workers' compensation coverage:

  • Not automatically covered in all states
  • Some employers voluntarily provide coverage
  • Important for physically demanding jobs (caregiving, cleaning)

  • Tax planning for household workers


    Multiple employer situations:

    If you work for several families, each paying under $2,700:

  • No individual employer has tax withholding obligations
  • You're still responsible for self-employment taxes on total earnings
  • Keep detailed records from all employers

  • Cash payment tracking:

  • Many household jobs involve cash payments
  • You must report all income, even if no W-2 is issued
  • Bank deposits, written agreements, or payment apps help document earnings

  • Deduction opportunities:

  • Transportation between different client homes
  • Professional cleaning supplies you purchase
  • Background checks or certifications required for work

  • When employers don't comply


    If your household employer isn't following tax rules:

  • You can file Form SS-8 to get worker classification determination
  • Report unpaid taxes using Form 8919 (Uncollected Social Security and Medicare Tax)
  • Contact your state labor department for wage and hour violations
  • Document all communications and payment records
  • Key Takeaway: Household workers have varying legal protections by state and must often handle their own tax planning, especially when working for multiple families or receiving cash payments.

    Sources

    household employeesnanny taxdomestic workersschedule hhousehold payroll

    Reviewed by Sarah Chen, Payroll Tax Analyst on February 28, 2026

    This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.