Paying a nanny "on the books" just means paying them as the employee they are, with taxes handled and records kept. It protects your nanny, who earns Social Security credits and can claim unemployment, and it protects you: an off-the-books arrangement can surface years later, and the IRS treats cash wages as taxable wages. This post is the step-by-step version. For the tax detail behind each step, see our Schedule H guide.
Step 1: Confirm your nanny is your employee
IRS Publication 926 says a worker is your household employee if you control not only what work is done but how it is done. A nanny who works your hours, in your home, following your rules for your children, is almost always an employee, not an independent contractor. Paying them on a 1099 doesn't change that.
A few people are treated differently for Social Security and Medicare: your spouse, your child under 21, your parent (with exceptions), and any employee under 18 for whom household work is not their main occupation. If your nanny is one of these, read Publication 926's family rules before you start.
Step 2: Set up before the first payday
- Get an employer identification number (EIN) from the IRS. It goes on the W-2 and Schedule H.
- Complete Form I-9 with your nanny by their first day. Publication 926 notes it is unlawful to knowingly employ someone who can't legally work in the US.
- Ask your nanny for Form W-4 if you agree to withhold federal income tax. For household employees, withholding income tax is voluntary for both of you.
- Contact your state about unemployment insurance and, if your state has income tax or other payroll programs, withholding registration.
- Put the pay rate, hours, overtime, paid time off and pay day in a written agreement.
Step 3: Pay at least minimum wage, and overtime where it applies
Nannies are covered by the federal Fair Labor Standards Act. The federal minimum wage is $7.25 an hour, and the Department of Labor reminds employers that where a state's law is more generous, they must comply with both, which in practice means paying the higher rate. Most nannies who don't live in your home are owed overtime at time and a half for hours over 40 in a workweek. Live-in nannies employed directly by a family are exempt from federal overtime, though not from minimum wage, and some states require overtime anyway.
Keep a record of hours worked each day and week. The Department of Labor's recordkeeping rules for household employers list name, address, hours and wages paid.
Step 4: Each payday, withhold, pay and give a pay stub
| Line | Rate or rule | Who pays |
|---|---|---|
| Social Security | 6.2% of cash wages, once you pay $3,000 or more in the year | Withheld from your nanny, and you match it |
| Medicare | 1.45% of cash wages, same $3,000 test | Withheld from your nanny, and you match it |
| Federal income tax | Only if your nanny asks and you agree, using Form W-4 | Withheld from your nanny |
| Federal unemployment (FUTA) | If you pay $1,000 or more in cash wages in any calendar quarter | You only |
| State taxes | Your state's rules | Varies by state |
Some families choose to pay their nanny's share of Social Security and Medicare themselves instead of withholding it. Publication 926 allows that, but the amount you pay counts as extra wages for income tax purposes, so put it on the W-2.
Then give a pay stub. The federal Fair Labor Standards Act doesn't require one, but many states do, and a stub that shows hours, gross pay, every deduction, net pay and year-to-date totals is the simplest way to keep both of you on the same page.
Step 5: Pay the taxes during the year
Household employers don't file quarterly Form 941. You report the federal employment taxes once a year on Schedule H with your own Form 1040. To avoid a large bill and a possible underpayment penalty, Publication 926 suggests increasing the federal income tax withheld from your own pay or making estimated tax payments during the year. State unemployment tax is usually paid quarterly to the state.
Step 6: Year-end forms
- Give your nanny Copies B, C and 2 of Form W-2 by February 1, 2027.
- Send Copy A with Form W-3 to the Social Security Administration by the same date. SSA's free W-2 Online service handles up to 50 forms.
- File Schedule H with your Form 1040, due April 15, 2027.
- File your state's annual unemployment reconciliation if your state requires one.
Doing it yourself or using a service
Every step above can be done by a family on its own; nothing requires a payroll company. Nanny payroll services take over registration, filing and payments for a monthly fee. Our comparison of nanny payroll services sets out what they charge on their own pricing pages.
Where PayDocs fits
PayDocs helps with steps 4 and 6 if you're doing it yourself. The free US nanny tax calculator shows your employer share of Social Security, Medicare and FUTA and your total cost, and the free paycheck calculator works out Social Security, Medicare and federal withholding for a paycheck. The pay stub generator turns each payday into a PDF stub with year-to-date totals, and the W-2 generator makes the employee copies at year end. PayDocs does not register you, file Schedule H, send Copy A or pay any tax.
Creating and previewing is free; a finished pay stub PDF is $4.99 once checkout opens, or less per document in packs of 4 or 12.
Questions
Can I pay my nanny in cash legally?
Yes, if you treat the cash as wages: withhold and pay Social Security and Medicare once you reach $3,000 in the year, keep records and report the pay on a W-2 and Schedule H. The IRS treats cash, checks and money orders alike as cash wages.
Can I pay my nanny as a 1099 contractor?
Usually not. IRS Publication 926 treats a worker as your household employee when you control how the work is done, which describes most nannies.
Do I have to withhold income tax from my nanny's pay?
No. For household employees, federal income tax withholding happens only if your nanny asks and you agree. Social Security and Medicare are required once wages reach $3,000 in 2026.
Do I have to give my nanny a pay stub?
Federal law doesn't require one, but many states do. A pay stub each payday is good practice everywhere.
Sources
- IRS, Publication 926 (2026), Household Employer's Tax Guide
- U.S. Department of Labor, Minimum wage
- U.S. Department of Labor, FLSA frequently asked questions
- U.S. Department of Labor, Fact Sheet #79B: Live-in domestic service workers
- U.S. Department of Labor, Fact Sheet #79C: Recordkeeping for household employers
- Social Security Administration, What you can do online (W-2 Online)
Sources checked October 4, 2026. This article explains how pay documents work; it is not tax or legal advice.
