If you pay a nanny, housekeeper, senior caregiver, or other household worker directly (rather than through an agency that employs them), you may be a household employer in the eyes of the IRS — with real payroll tax obligations that many families don't realize apply to them until well after the fact.
The 2026 Threshold: $3,000
You're generally required to withhold and pay Social Security and Medicare tax (FICA) on a household employee once you pay them $3,000 or more in cash wages during the calendar year — up from $2,800 in 2025. This threshold is per employee, not a total across all household workers: paying three different babysitters $2,500 each doesn't trigger the obligation for any of them individually, but paying one nanny $3,000 crosses the line for that person specifically.
⚠️ Once you cross the $3,000 threshold with a given employee, taxes are owed on the entire year's wages paid to that person, not just the amount above $3,000. A nanny paid $250/week crosses the threshold around week 12 — and at that point, FICA applies retroactively to everything paid from week 1, not just going forward.
Who's Exempt Regardless of Amount Paid
Certain household workers don't count toward this threshold at all, no matter how much you pay them:
- Your spouse
- Your child under age 21
- Your parent (with some exceptions)
- Any employee under age 18, unless providing household services is their principal occupation (a professional babysitter or nanny under 18, as opposed to an occasional teenage babysitter, could still trigger the rules)
The FICA Math
Once the threshold is triggered, Social Security and Medicare tax together total 15.3% of cash wages, split evenly: 7.65% is the employer's (the family's) responsibility, and 7.65% is the employee's share. Families can either withhold the employee's 7.65% share from the nanny's pay, or choose to pay the employee's share themselves without withholding it (in which case that amount is not counted as additional taxable wages for income tax purposes, but is still counted as wages for Social Security and Medicare purposes).
Federal Unemployment Tax: A Separate, Lower Threshold
Independent of the $3,000 FICA threshold, you also owe Federal Unemployment Tax (FUTA) — generally 6% on the first $7,000 of wages — if you pay $1,000 or more in any single calendar quarter to all household employees combined. This threshold is measured differently (quarterly, and combined across employees) than the FICA threshold (annual, per employee), so it's entirely possible to owe FUTA without yet owing FICA, or vice versa, depending on how wages are distributed through the year.
Reporting: Schedule H and Form W-2
Household employment taxes are reported on Schedule H, filed with your personal Form 1040 by the regular April 15 deadline (not on a separate business return) — this is one of the more commonly missed aspects, since people don't expect household employee taxes to appear on their personal income tax return at all. You're also required to issue the employee a Form W-2 by January 31 of the following year (or the next business day if that date falls on a weekend), the same as any other employer would for any other employee.
Income Tax Withholding: Optional
Unlike FICA, withholding federal income tax from a household employee's wages is not mandatory — it's something you can agree to do at the employee's request, but you're not required to. If you don't withhold income tax, the employee is responsible for covering their own tax liability, potentially through quarterly estimated payments if their total tax owed is significant enough.
Dependent Care FSA Interaction
If your employer offers a Dependent Care Flexible Spending Account, you can use pre-tax FSA dollars to pay for nanny wages that qualify as dependent care expenses (care enabling you to work, for a child under 13 or another qualifying dependent) — the 2026 federal maximum contribution is $7,500 for Married Filing Jointly ($3,750 if Married Filing Separately), though your specific employer's plan may cap it lower than the federal maximum. This can meaningfully offset the added cost of the employer-side FICA tax described above.
A Worked Example
A family pays their nanny $600/week, or $31,200 for the year — well past the $3,000 threshold. FICA at 15.3% totals $4,773.60 for the year, split evenly: $2,386.80 is the family's employer-side obligation, and $2,386.80 is the nanny's share (either withheld from her pay each week or covered separately by the family). If the family also crosses $1,000 in a calendar quarter (almost certain at this pay rate), they owe FUTA on the first $7,000 of her wages as well.
Common Questions
Does this apply if I hire through a nanny agency? Generally no, if the agency is the legal employer that controls the work and pays the worker directly — but if you're the one directing the work and paying the person yourself, even if you found them through an agency, you may still be the household employer for tax purposes.
What if I already missed prior years of nanny tax compliance? Catching up is generally better than continuing to ignore it — penalties for late filing and payment compound over time, and the IRS has established processes for household employers to come into compliance, though back taxes and some penalties will typically still apply.
Do I owe state household employment taxes too? Often yes — many states have their own state unemployment insurance requirements for household employers, separate from and in addition to federal FICA and FUTA.
💡 If you're the household employee rather than the employer, treat your W-2 wages the same as any other job's wages in the calculator — there's nothing special about the calculation on your side once the W-2 is issued correctly.