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If you are going to hire a nanny, it is important to understand your household employer tax and payroll responsibilities. These obligations apply to all full-time and part-time nannies that you employ and expect to pay more than $2,800 in 2025.
Some families pay their childcare providers in cash or “off the books.” Although this gives your nanny a slightly larger paycheck and saves you from the extra paperwork, it is illegal and can make you liable for unpaid employment taxes, interest, and penalties. This also cheats your nanny from contributing to a Social Security account and inhibits them from establishing credit or a legitimate employment history. Once you hire your nanny, you will begin the process of filing forms and paying nanny taxes.
Here are the household employer responsibilities for nanny taxes, payroll, and other legal obligations when employing a nanny or another household worker in your home.
Get an Employer Identification Number (EIN)
You must first obtain an employer identification number (EIN) from the IRS to report your household employment taxes and issue employee tax statements. Your state will require a separate employer number for state unemployment insurance reporting and possibly income tax withholding reporting as well.
Pay Social Security & Medicare Taxes
Your household employees’ wages fall under the Federal Insurance Contribution Act (FICA), so a portion of the wages you pay needs to be withheld and paid as Social Security and Medicare taxes. Both you and your employee are required to pay a percentage (each contributes 7.65%) of their gross wages. The IRS, realizing that many employers will not want a large tax liability at the end of the year, strongly recommends quarterly estimated payments.
NOTE: You do not need to pay Social Security and Medicare taxes on wages you pay to your:
- Spouse
- Children under 21 years of age
- Parent
- Employees under the age of 18
Withhold Federal & State Income Taxes
Withholding income taxes is not required – but recommended – for household employers.
By withholding income taxes throughout the year, your employee will not be stuck paying their entire obligation when they file their personal tax return. If you agree to withhold these taxes from your employee’s pay, provide your worker with Form W-4 at the start of employment. This will determine how much to withhold each pay period. The IRS encourages household employers to remit federal nanny taxes (including income, FICA, and unemployment taxes) four times a year using Form 1040-ES and then reconcile your payments on Schedule H, which is filed with your tax return.
Generally, all states require state income taxes to be paid quarterly to your state tax agency. All wages and tax withholdings must be reported on your employees’ Form W-2 at the end of the year. The W-2 must be given to your employee and the Social Security Administration by January 31.
Pay Federal & State Unemployment Taxes
Household employers are required to pay federal and state unemployment taxes. You will pay these taxes on a preset amount of your employees’ annual wages. The IRS and some states require you to treat non-cash benefits, like meals and lodging, as wages subject to this nanny tax.
NOTE: You do not need to pay unemployment taxes on wages paid to your spouse, children under 21 years of age, or your parents. However, you do need to pay this tax for employees under the age of 18.
Check State Requirements for Workers’ Compensation & Disability Insurance
Workers’ compensation helps protect an employee who is injured or becomes ill on the job by helping to cover necessary medical expenses and lost wages.
Coverage should be in place on your employee’s first day of work.
Your homeowner’s insurance policy may not cover employee injuries in your home. Without the required – or proper – coverage, you may be liable for thousands of dollars in medical bills or face a costly lawsuit from your employee to recover lost wages.
In states where you are required to carry workers’ compensation insurance, fines can be as high as $5,000 for every 10 days without a policy.
See which states require that you carry a workers’ compensation and/or disability policy if you employ someone to work in your home. Contact the GTM Insurance Agency, at (800) 929-9213 about obtaining workers’ compensation coverage.
Use Dependent Care Assistance & Tax Credits
You can set aside pre-tax funds for your employee’s wages through a Dependent Care FSA, which your employer would offer as a benefit.
This plan allows you to contribute up to $5,000 of your wages to the account, reducing the amount subject to federal and state income taxes. Contact your human resources department for details. You can also claim you’re a portion of your nanny’s wages as part of the Child and Dependent Care Tax Credit on your federal income tax return.
Employer Responsibilities Beyond Tax Obligations
Household employers must understand federal, state, and local employment laws that pertain to domestic workers, such as:
Minimum Wage
According to the Fair Labor Standards Act (FSLA), household employees must be paid at least the federal or state minimum wage, whichever is higher. While the federal minimum wage is $7.25/hour, some states have a minimum wage as high as $15 per hour. Some metropolitan areas are even higher. Check the minimum wage in your city and state.
Overtime Pay
You must also pay overtime at least one and a half times the regular pay rate. Overtime pay must be paid for hours worked over 40 in a seven-day work week. However, some live-in nannies are exempt from overtime depending on the state where they are employed. Keep in mind that state and local laws for overtime vary and may supersede the federal FLSA law. Learn about the overtime laws in your state.
Paid Family and Medical Leave
Several states have enacted paid family and medical leave laws that cover all workers, including household employees. You and/or your employee may be required to contribute a certain percentage of their pay towards these benefits and follow the guidelines around taking paid leave under the law. Learn about these laws in your state.
Domestic Worker Rights Laws
Several states and cities have enacted labor laws to protect domestic workers’ rights. If you live in one of these states or cities, review the domestic worker protections and ensure you follow the law.
How GTM Can Help with Nanny Taxes and Payroll
The IRS estimates that it takes a household employer 60 hours yearly to comply with all federal and state tax laws. It’s time-consuming and may seem overwhelming.
You have better ways to use your time than spending it on household tax and payroll administrative tasks.
Since 1991, GTM Payroll Services has handled nanny taxes, payroll, benefits, and insurance for tens of thousands of families nationwide.
Let us manage your nanny taxes and household payroll with a full range of services, including:
- Automatic payroll processing with free direct deposit
- 100% guaranteed on-time, every-time tax filings
- Secure, online account access for you and your employee
- In-house workers’ compensation insurance policies
- Compliance assistance with tax and labor laws
- Additional in-house benefits options like health coverage, retirement plans, and more
- Concierge level of client support
Plus, our unparalleled, personalized customer care gives us the best client reviews in the industry.
Get a complimentary, no-obligation consultation with a household employment expert. We’ll review your hiring situation and advise on managing your payroll, tax, and insurance obligations. Call (800) 929-9213 today!
Tax and legal updates or any other information GTM Payroll Services Inc. shares is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
