Employing a nanny can make a world of difference in your household. But it also comes with tax responsibilities. Understanding and fulfilling these obligations is crucial to ensure you are following both the federal and state laws. Here’s how to work through the process of filing taxes as a nanny employer.
1. Determine If You Owe Nanny Taxes
If you pay your nanny $2,800 or more in cash wages in 2025, you’re required to withhold and pay Social Security and Medicare taxes. This threshold has increased from $2,700 in 2024.
2. Understand Your Tax Obligations
Social Security and Medicare Taxes (FICA): The combined tax rate is 15.3% of your nanny’s cash wages. Typically, both employer and employee share this tax equally, each paying 7.65%. You can choose to cover your nanny’s portion instead of withholding it from their pay.
Federal Unemployment Tax Act (FUTA): If you pay your nanny $1,000 or more in any calendar quarter, you’re responsible for FUTA taxes. The standard FUTA tax rate is 6% on the first $7,000 of wages paid. However, many employers qualify for a 5.4% credit, effectively reducing the FUTA tax rate to 0.6%.
State Taxes: State unemployment tax rates and requirements vary. Consult your state’s tax agency to determine your obligations.
3. Register as a Household Employer
Obtain an Employer Identification Number (EIN) from the IRS. This number is necessary for all tax filings related to your nanny’s employment. You can apply for an EIN online through the IRS website.
4. Verify Employment Eligibility
Ensure your nanny is legally eligible to work in the United States by completing Form I-9, Employment Eligibility Verification. Both you and your nanny must fill out this form, and you’ll need to retain it for your records.
5. Set Up a Payroll System
Implement a system to manage your nanny’s payroll, including:
- Calculating Wages: Track hours worked and calculate gross pay.
- Withholding Taxes: Deduct the employee’s share of FICA taxes (if not paying it yourself) and any applicable state taxes.
- Issuing Pay Stubs: Provide documentation of each payment, detailing gross wages, deductions, and net pay.
6. Make Tax Payments
Deposit federal taxes (both employer and employee portions) using the Electronic Federal Tax Payment System (EFTPS). State tax payment procedures vary; consult your state’s tax agency for guidance.
7. Provide Year-End Tax Forms
By January 31 of each year:
- Form W-2: Provide your nanny with a W-2, detailing their annual earnings and tax withholdings.
- Form W-3: Submit Form W-3, along with Copy A of Form W-2, to the Social Security Administration.
Additionally, file Schedule H with your personal income tax return (Form 1040) to report household employment taxes.
Stay Informed About Tax Law Changes
Tax laws can change annually. For instance, the nanny tax threshold increased to $2,800 in 2025. Stay updated by consulting resources like the IRS’s Publication 926, Household Employer’s Tax Guide and reputable payroll service providers.
Consider Professional Assistance
Managing nanny taxes can be complex. Consider consulting with a tax professional or using a household payroll service to ensure compliance with all federal and state requirements.
By following these steps, you can fulfill your tax obligations as a nanny employer, providing legal employment to your caregiver and ensuring compliance with current tax laws.
Reminder: Westside Nannies is a referral agency, not a tax advisor. This information is not meant to stand in the place of advice from a legal or tax professional. For tax-specific questions, be sure to consult a tax professional.