Tax

What is the Nanny Tax?

The Nanny Tax refers to federal and state employment taxes owed when you hire household workers like nannies, housekeepers, or senior caregivers. Learn who qualifies, how to comply, and what expenses are involved.

What Is the Nanny Tax?

The Nanny Tax is a colloquial term for the combined federal and state employment taxes that household employers owe when they hire household workers. The term gained popularity because paying these taxes — and the compliance paperwork — often comes as a surprise to first-time household employers who expected paying someone "off the books" would be simpler. Schema DefinedTerm: Nanny Tax — federal and state employment taxes (FICA, FUTA, and state unemployment) that household employers must pay and withhold when household employees' cash wages meet or exceed the annual threshold ($2,700 for 2024). The threshold for 2024 is $2,700 in cash wages per employee (this threshold adjusts annually). If you pay a household worker $2,700 or more in a calendar year, you are subject to household employer tax obligations.

Who Is a Household Employee?

A household employee is someone who works in your home under your direct control: Common Household Employees: - Nannies and au pairs - Housekeepers and maids - Cooks and private chefs - Chauffeurs and drivers - Gardeners and landscapers - Senior care providers and in-home nurses - Butlers and personal assistants NOT Household Employees (Independent Contractors): - Plumbers, electricians, or other trade workers you hire for one-time jobs - Cleaning services or dog walking companies where the worker sets their own schedule - Pool maintenance companies - Landscaping companies The key test: Does the worker set their own hours, use their own methods, and work for other clients? If so, they're likely an independent contractor, not a household employee.

The Nanny Tax Components

1. Social Security and Medicare (FICA) If cash wages meet or exceed $2,700 (2024), you pay: | Tax | Employer Pays | Employee Pays (Withheld) | |---|---|---| | Social Security (OASDI) | 6.2% | 6.2% | | Medicare | 1.45% | 1.45% | | Total FICA | 7.65% | 7.65% | Example: You pay a nanny $40,000 in 2024. - Employer FICA: $40,000 × 7.65% = $3,060 - Employee FICA (withheld): $3,060 - Total FICA cost: $6,120 2. Federal Unemployment Tax (FUTA) FUTA is 6.0% on the first $7,000 of wages per employee, but most employers qualify for a 5.4% credit, reducing the effective rate to 0.6%. Example: $40,000 nanny wages - FUTA (before credit): $7,000 × 6% = $420 - With maximum credit: $7,000 × 0.6% = $42 3. State Unemployment Tax (SUTA) Each state has its own unemployment insurance program. Rates and wage bases vary significantly — typically 1-7% on a wage base of $7,000-$40,000.

Freelancer Example: The Nanny Tax Reality

Scenario: Taylor, a freelance marketing consultant, hires a part-time nanny for $15,000 in 2024. They cross the $2,700 threshold. Taylor's household employer costs: - Employer FICA: $15,000 × 7.65% = $1,148 - FUTA: $42 - State unemployment (assuming 2% rate on $10,000 base): $200 - Total additional tax cost: ~$1,390 Taylor must also withhold the employee's $1,148 FICA portion from the nanny's wages and remit it to the IRS quarterly.

Household Employer Payroll Compliance

Many household employers use specialized payroll services (Care.com HomePay, GT Shirley, NannyTax) that handle: - Employee onboarding and W-4 collection - Pay stub generation - Withholding calculations - Federal and state tax filings - Year-end W-2 generation This is strongly recommended over DIY compliance — mistakes can trigger penalties.

How Eonebill Helps

While Eonebill focuses on business invoice and expense management, understanding household employer obligations is important for overall financial planning. Keep personal and business finances clearly separate, and consult a household payroll specialist or CPA for nanny tax compliance.

Related Terms

- W-2 Form — employee wage and tax statement - Payroll Tax — employment taxes generally - FICA — Social Security and Medicare taxes

Related Templates

- Household Payroll Tracking Template - Nanny Tax Calculator Template

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Frequently Asked Questions

What is the Nanny Tax?

The 'Nanny Tax' is an informal term for the federal and state employment taxes that household employers must pay when they hire household workers who meet certain thresholds. If you pay a household employee (nanny, housekeeper, senior caregiver) $2,700 or more in cash wages in 2024 (the social security wage base threshold), you must pay employer portions of FICA (Social Security and Medicare), federal unemployment tax (FUTA), and possibly state unemployment tax.

Who counts as a household employee?

A household employee is anyone who works in or around your home under your direction, and who is not in a trade or business of their own. Common examples: nannies, housekeepers, cooks, maids, chauffeurs, gardeners, senior caregivers, and in-home nurses. Independent contractors (those who set their own hours, use their own methods, and work for multiple clients) are not household employees — they're contractors, and different rules apply.

How much does the Nanny Tax cost?

As a household employer, you're responsible for: (1) Employer FICA: 7.65% of cash wages (6.2% Social Security + 1.45% Medicare); (2) FUTA: 6.0% on first $7,000 of wages (though a credit typically reduces effective rate to 0.6%); (3) State unemployment: varies by state (typically 1-5% of wages). Combined employer cost is typically 8-12% of wages above the threshold.

Do I need to withhold from my household employee's wages?

Yes — if wages exceed the threshold, you must withhold the employee's portion of FICA (6.2% Social Security + 1.45% Medicare = 7.65%) from their wages. You also withhold federal income tax if the employee requests it (W-4) and state income tax if applicable. In practice, most household employers set up payroll services that handle withholding, reporting, and tax payments.

What forms do I need to file as a household employer?

Required forms include: Form W-2 (to employee by Jan 31), Schedule H (filed with your personal Form 1040), Form 941 or 944 (quarterly or annual employer tax returns), and state unemployment tax filings. You may also need to register with your state's labor department. If using a payroll service, they'll typically handle the filings.