Everything You Need to Know About Nanny Taxes (2025 Edition)

Are You a Household Employer?

If you're hiring a nanny, housekeeper, caregiver, or similar worker and you control what work is done and how it’s done, then the IRS considers you a household employer, not someone contracting an independent worker. This distinction triggers specific tax and documentation responsibilities.

✅ Pre-Tax Setup

1. Complete and Retain Form I-9 (Per Employee Hired)

You must verify that your employee is legally authorized to work in the U.S. Have them complete Form I-9, verify the original documentation, and retain a copy in a safe place for your records.

2. Apply for an EIN (One-Time per Household)

Before filing taxes or submitting wage forms, apply for an Employer Identification Number (EIN) through the IRS: Apply for EIN

3. Understand State Unemployment Tax Rules

Each state has different unemployment insurance tax registration rules. Register and comply as needed.

4. Set Up a Record-Keeping System

Track:

• Track pay periods and hours
• Maintain records of payments
• Review DCFSA limits if applicable through your employer benefits

💵 Payroll Tax Obligations

Dependent Care Flexible Spending Account (DCFSA)

If your employer offers this, you may reduce your taxable income by using pre-tax dollars for nanny wages. Key points:

• Varies by filing status
• Annual limit changes yearly
• Use-it-or-lose-it
• Funds accrue with each paycheck
• Submit paystubs to claim

💡 Use our free pay stub generator to streamline documentation.

Social Security & Medicare (FICA)

If paying $2,800+ in 2025, withhold/pay:

• 6.2% Social Security (employee)
• 1.45% Medicare (employee)
• Employer matches employee amounts: 6.2% Social Security + 1.45% Medicare

You may opt to pay both shares.

Federal Income Tax

Not required, but may be withheld if requested by the employee.

Federal Unemployment Tax (FUTA)

• Owed if $1,000+ paid in any quarter
• 6% on first $7,000
• 5.4% credit available if state unemployment taxes are paid on time → net 0.6%

📅 How to Pay

File Schedule H with your personal tax return (Form 1040) annually. You’ll report:

• Withheld FICA (if any)
• Your FICA share
• FUTA

To avoid a large bill, adjust your employer withholdings.

🏛️ State Unemployment Taxes

Example: Michigan requires SUTA filings quarterly by the 25th after each quarter. Timely payment ensures full FUTA credit.

📄 Issue W-2 and W-3

Annually:

• Send W-2 to nanny by Jan 31, 2026
• Submit W-2/W-3 to SSA online: SSA Employer Portal
• ⚠️ Ensure stub totals match W-2 exactly — avoid rounding differences in cents to prevent SSA rejections

🔁 Annual Checklist

• Check FICA and FUTA wage thresholds
• Confirm updated tax rates
• Verify state-specific unemployment tax deadlines
• Review DCFSA limits if applicable through your employer benefits
• Pay any due taxes via Schedule H
• Issue and submit W-2/W-3

Final Thoughts

Paying your nanny legally is simpler than it sounds. Follow the above checklist and use tools like NannyPayStub to reduce the burden. Doing so keeps you compliant and your employee protected.