What Is Nanny Tax?
Most families never set out to become employers. You hire someone you trust, agree an hourly rate and pay them each week. This guide explains when the IRS treats that as household employment, what you owe for 2026, and how to keep a clean pay record for every payday with the PayDocs pay stub generator.
Nanny tax is the everyday name for household employment taxes. The IRS covers them in Publication 926, its Household Employer's Tax Guide. The rules apply to anyone you pay to work in or around your home, as long as they are your employee.
Typical household employees include:
- nannies and live-in au pairs paid directly by the family
- babysitters who work regular hours for one family
- housekeepers and cleaners who work only for you
- home health aides and private carers for a parent
- private chefs, drivers and gardeners on your payroll
Employee or Independent Contractor?
The IRS test is control. Publication 926 says the worker is your employee if you can control not only what work is done, but how it is done. A nanny who follows your schedule, your rules for the children and your house routine is usually an employee. A cleaning company that sends its own staff, brings its own supplies and invoices you is usually not.
If an agency places a worker with you, check who sets the pay and controls the work. That decides who the employer is.
When Does Nanny Tax Apply in 2026?
Two thresholds matter, and they work separately. Cross either one and you have filing work to do.
| Tax | When it applies in 2026 | Who pays |
|---|---|---|
| Social Security and Medicare | Cash wages of $3,000 or more to one household employee in the year | Employer and employee shares |
| Federal unemployment tax (FUTA) | Total cash wages of $1,000 or more to household employees in any calendar quarter | Employer only |
| Federal income tax | Only if the employee asks and you agree to withhold | Employee, withheld by you |
The IRS notes that the $3,000 threshold can change from year to year, so check the current Publication 926 before each new tax year.
Who Doesn't Count
Some family members are excluded from the Social Security and Medicare rules. Publication 926 lists wages paid to:
- your spouse
- your child under age 21
- your parent, with exceptions when they care for your child
- an employee under 18, unless household work is their principal occupation
A student babysitter aged 16 is usually outside these taxes. A 19-year-old nanny working full time is not.
Social Security and Medicare: The Numbers
Each side pays 7.65% of cash wages once the threshold is crossed. That is 6.2% for Social Security and 1.45% for Medicare from you, and the same again from your employee.
Worked example: you pay a nanny $600 a week. Your employee share to withhold is $45.90 a week (7.65% of $600). Your own employer share is another $45.90. Net pay before any agreed income tax is $554.10.
You may choose to pay the employee's share yourself instead of withholding it. Publication 926 treats that extra amount as additional wages for income tax, so record it clearly.
Federal Income Tax: Only If You Agree
You don't have to withhold federal income tax from a household employee. The IRS says you should withhold it only if your employee asks and you agree. If you do, ask them for a completed Form W-4 and use it for every paycheck.
Many nannies ask for withholding because it saves them a large bill in April. Agreeing is usually kind, and it adds one line to each pay stub.
What Is Schedule H?
Schedule H (Form 1040) is where you report household employment taxes for the year. The IRS says to use it if you paid wages subject to Social Security, Medicare or FUTA tax, or if you withheld federal income tax.
For 2026 wages, Publication 926 says to file Schedule H with your 2026 federal income tax return by April 15, 2027. The tax due is added to your personal return. To avoid a large balance at filing time, Publication 926 describes three options:
- ask your own employer to withhold more federal income tax from your wages
- ask the payer of your pension or annuity to withhold more federal income tax
- make estimated tax payments for 2026 to the IRS
How to Pay a Nanny Legally, Step by Step
- Confirm the worker is your employee using the control test.
- Get an employer identification number (EIN) from the IRS. You need it on Schedule H and the W-2.
- Ask your nanny for their Social Security number and, if you will withhold income tax, a Form W-4.
- Contact your state agency about state unemployment tax and any state withholding.
- Agree the gross rate, pay frequency and overtime in writing.
- Each payday, work out Social Security, Medicare and any agreed income tax, then pay the net amount.
- Give a pay stub showing gross pay, each deduction, net pay and year-to-date totals.
- Give a Form W-2 for the year and file Schedule H with your Form 1040.
Form W-2 for a Nanny
You give a W-2 when wages reach the threshold or you withheld income tax. Publication 926 says to file a separate 2026 Form W-2 for each household employee in those cases. The 2026 W-2 is due by February 1, 2027.
The W-2 totals must match the year's pay records. That is why the year-to-date figures on each pay stub matter: the last stub of December should agree with the W-2 boxes.
Nanny Tax Rules by State
Federal rules are only half the picture. Publication 926 tells household employers to contact their state unemployment tax agency, and to check whether they need to pay or collect other state employment taxes or carry workers' compensation insurance.
The answer depends on where you live in the United States:
- a family in Houston, Texas has no state income tax to think about, because Texas does not have a personal income tax
- a family in Miami, Florida is in the same position on income tax
- a family in Chicago, Illinois or in New York lives in a state with an income tax, so state withholding is one more question to ask
State unemployment tax can apply in every one of those places. Some states also set rules on pay statements and domestic workers' hours, so check your state labor department before the first payday.
Does a Nanny Need a Pay Stub?
Federal law doesn't require one. The Department of Labor states that the Fair Labor Standards Act does not require employers to provide pay stubs, though it does require accurate records of hours worked and wages paid. Many states do require a written pay statement.
A pay stub also protects both of you. Your nanny can see exactly what was withheld, and you have a record that matches your Schedule H and W-2. Our page on pay stubs for household employers covers what to include.
Why Use PayDocs for Nanny Pay Stubs?
PayDocs turns each payday's figures into a clear pay stub you can check before you pay. It suits a family paying one or two people without payroll software.
- Enter your details, your nanny's details and the pay period.
- Social Security, Medicare and the other taxes we support are worked out where our rules are reviewed; the generator lists them.
- Every line stays editable, and year-to-date totals carry forward.
- Previewing is free. You pay only for the finished PDF, as shown on our pricing page.
PayDocs does not run payroll, pay taxes or file Schedule H for you. It makes the payday record from your real figures.
Tips Before Your Nanny's First Payday
- Get your EIN before the first payday, not in January.
- Write down the agreed gross rate, so the nanny and you work from the same number.
- Track hours every week, including overtime.
- Decide now whether you will withhold income tax.
- Keep employment tax records for at least four years after the return's due date, as the IRS advises.
- Save every pay stub in one place so the year-end totals are easy.
Common Mistakes to Avoid
The costly mistakes are usually about timing and records.
- Paying "cash, no paperwork" and discovering the threshold in April.
- Treating a full-time nanny as a 1099 contractor.
- Forgetting the employer share of Social Security and Medicare.
- Missing the FUTA quarter test because wages were split across two workers.
- Year-to-date totals on pay stubs that don't match the W-2.
- Putting the full Social Security number on documents the employee shares with others.
Keep It Legitimate and Accurate
A pay stub must show wages you actually paid and taxes you actually withheld. Creating or changing a stub to mislead a lender, landlord or agency is fraud. PayDocs documents are never proof of income and are not filed with or approved by the IRS.
Final Takeaway
Nanny tax sounds heavier than it is. Once you know the two thresholds, the 7.65% shares and the two year-end forms, it becomes a routine: pay, withhold, record, and report once a year. The record you keep each payday is what makes April easy.
Questions
What is nanny tax?
Nanny tax is the federal employment tax a family owes on a household employee's wages: Social Security, Medicare, possibly FUTA, and any income tax you agree to withhold.
How much do I have to pay a nanny before nanny tax applies?
For 2026, Social Security and Medicare apply once you pay one household employee $3,000 or more in cash wages. FUTA applies at $1,000 in any calendar quarter.
Do I file Schedule H if I only paid a babysitter occasionally?
Usually not, if cash wages stayed under the thresholds and you withheld no income tax. Check the current Publication 926, because thresholds can change each year.
Is a nanny an employee or a contractor?
Usually an employee. The IRS says a worker is your employee if you control what work is done and how it is done, which describes most nanny arrangements.
Do I have to withhold income tax from my nanny's pay?
No. The IRS says you withhold federal income tax only if your employee asks and you agree. Use their Form W-4 if you do.
When is the W-2 due for 2026 nanny wages?
Publication 926 gives February 1, 2027 for the 2026 Form W-2, when wages reached the threshold or you withheld income tax.
Do I need an EIN to employ a nanny?
Yes, if you have household employment taxes to report. The IRS says you must include your EIN on the forms you file, including Schedule H and the W-2.
Do I pay state taxes as a household employer?
Possibly. State unemployment tax and state withholding depend on where you live. Publication 926 tells you to contact your state agency.
How long should I keep nanny payroll records?
The IRS advises keeping employment tax records for at least four years. Keep pay stubs, hours, W-2 copies and Schedule H together.
Can PayDocs make pay stubs for my nanny?
Yes. PayDocs makes pay stubs from your real payroll figures for people you employ. It does not file taxes or verify income. Start with the pay stub generator.
Sources
- IRS — Publication 926, Household Employer’s Tax Guide
- IRS — Topic no. 756, Employment taxes for household employees
- IRS — About Schedule H (Form 1040), Household Employment Taxes
- U.S. Department of Labor — Questions and answers about the Fair Labor Standards Act
- Texas Comptroller of Public Accounts — Fiscal Notes: Texas does not have a personal income tax
- Florida Department of Revenue — FAQ: Florida does not impose a personal income tax
Official sources checked October 3, 2026. This guide explains how pay documents work; it is not tax or legal advice.
