Do I Have to Pay Taxes on My Nanny?
How the "nanny tax" works, what you owe, and why paying properly protects your family as much as your nanny.
The short answer is almost certainly yes. If you hire someone to work in your home and you direct what they do and how they do it, the law treats them as your employee, not an independent contractor, and that makes you a household employer with tax obligations. This is true of nannies, and equally of housekeepers, household managers, private chefs, and in-home senior caregivers.
The trigger is a dollar threshold the IRS sets each year. For 2026, if you pay a household employee $3,000 or more in cash wages in the year, you owe Social Security and Medicare taxes on those wages. That figure was $2,800 in 2025 and rises with inflation, so it is worth confirming the current year's number. One detail surprises people: the threshold is measured per employee, and once you cross it, the taxes apply to all of that employee's wages for the year, not only the amount above the line. Wages paid to your spouse, your child under 21, your parent, or anyone under 18 are generally exempt.
What you actually owe comes in a few parts. Social Security and Medicare together (often called FICA) run 15.3 percent of wages, split evenly: you pay 7.65 percent as the employer, and an equal 7.65 percent is withheld from your employee's pay, though you may choose to cover their share rather than withhold it. Separately, if you pay $1,000 or more in any calendar quarter, you owe federal unemployment tax, six percent on the first $7,000 of wages, paid entirely by you, plus a state unemployment tax that varies. Withholding federal income tax from your employee's pay is optional, but many families do it anyway so their nanny is not left with a large bill at tax time.
The most consequential mistake is misclassification. Treating a nanny as an independent contractor and handing them a 1099 is, in the eyes of the IRS, tax evasion, and enforcement has tightened. A nanny works in your home, on your schedule, with your direction and your supplies, which makes them an employee who should receive a W-2. Agencies that try to dress the role up as contracting do families no favors.
Taxes are not the whole of it. As a household employer you are also subject to wage and labor rules: at least the federal or state minimum wage, whichever is higher; overtime at one and a half times the regular rate for hours over 40 in a week, though some live-in arrangements are treated differently depending on the state; and, in a growing number of states and cities, a Domestic Workers' Bill of Rights and paid family and medical leave programs. Many states also require household employers to carry workers' compensation insurance, and the penalties for going without it can be steep.
It is fair to ask why this matters beyond simple compliance, and the answer is that doing it properly protects everyone. Paying off the books exposes you to back taxes, penalties, and audits, and it leaves you vulnerable if a worker later files for unemployment, is injured on the job, or brings a claim. It can also surface at the worst possible moment, including in background checks and security-clearance processes, a real consideration for families in public or sensitive life. Just as important, paying correctly is what professionals expect. It gives your nanny verifiable income for a mortgage or a loan, a Social Security and Medicare record, and the protections of legitimate employment, and it widens the pool of serious candidates willing to work for you. There are also genuine savings available, through a Dependent Care FSA if your employer offers one and the federal Child and Dependent Care Tax Credit, that offset part of the cost.
None of this needs to be onerous. The IRS itself estimates that managing household payroll and taxes takes roughly 60 hours a year, which is why most families use a specialist household-payroll service or an accountant to register them as an employer, run payroll, withhold and remit the right amounts, and file the year-end forms. We can introduce you to a trusted payroll partner we work with, so that side of employing someone is handled correctly from the first paycheck.
A note of caution: this is general information, not tax or legal advice, and we are not tax advisors. Thresholds and rules change yearly and vary by state, so confirm the current figures and your local obligations with a qualified professional before you act. It is the standard we hold at Nannies + more…® on every search.
Sources: IRS Publication 926 (Household Employer's Tax Guide) and current-year IRS household-employment thresholds.