Household employer · Pub 926 · Schedule H
The Nanny Tax (2025 & 2026)
When your household pays a caregiver enough to cross the annual threshold, you become an employer in the eyes of the IRS. Here is what changes, what it costs, and why paying legally often ends up cheaper than it looks.
Who counts as a household employee
The IRS uses a common-law test: if you control what work is done and how it’s done, the worker is your employee. A live-in nanny, an in-home senior caregiver, a regular housekeeper — you set the schedule, you provide the tools, you decide the methods. That’s an employee.
Honest exceptions: workers placed by an agency where the agency controls the work, and true self-employed sitters running their own business (own clients, own tools, own hours). If in doubt, common-law wins over paperwork.
The threshold is a cliff, not a floor
Cash wages to any one household employee: at or above $2,800 in 2025 (or $3,000 in 2026) triggers Social Security and Medicare on every dollar paid — not just the excess. Under the threshold, zero FICA.
Worked 2026 example: $30,000 in wages ⇒ employer FICA $2,295 + employee FICA withheld $2,295 + FUTA $42 = Schedule H remit of $4,632. Total employer cost $32,337.
FICA-exempt family members
You do not owe household-employer FICA on wages paid to:
- Your spouse.
- Your child under age 21.
- Your parent (with narrow exceptions).
- An employee who is under 18 at any time during the year, unless household work is their principal occupation (for a student it is not). A college sitter qualifies only in the year they turn 18; one who was 18 or older all year does not.
Schedule H, step by step
- Get an EIN. Free online at IRS.gov — a household employer needs one even without a business.
- Issue a Form W-2 by January 31 (the next business day when that falls on a weekend: February 2, 2026 for 2025 wages; February 1, 2027 for 2026 wages) if the employee’s cash wages reached the Social Security/Medicare threshold ($2,800 for 2025, $3,000 for 2026) or if you withheld any federal income tax, even on wages below the threshold. Send Copy A of the W-2 with Form W-3 to the Social Security Administration by the same date (filing online with the SSA’s free W-2 Online service creates the W-3 for you).
- File Schedule H with your own Form 1040 — no separate business return, no 941 filings. Household-employer FICA and FUTA flow through here.
- Cover the tax. Either raise your own W-2 withholding (submit a new W-4) or make quarterly estimated payments — otherwise you can trip the underpayment penalty at filing.
- Federal income tax withholding for the nanny is optional. Both parties have to agree to it; most household employees just handle it on their own return.
FUTA and state unemployment
FUTA applies if you paid total cash wages of $1,000 or more to all your household employees combined in any calendar quarter of this year or last year (for 2026: any quarter of 2025 or 2026). It is then due on the first $7,000 of each employee’s cash wages for the year: 6.0% nominal, 0.6% net with the full state credit (max $42 per employee). The credit is smaller in credit-reduction states. Wages you pay to your spouse, your child under 21 or your parent are not subject to FUTA (Pub 926). State unemployment usually also applies; see the FTA state agency directory.
Why paying legally usually wins
- Over-the-table wages paid for care count as work-related expenses for both the Dependent Care FSA (§129) and the §21 credit, but never the same dollars: every FSA dollar you exclude reduces the credit’s $3,000 / $6,000 expense cap. With two or more children, a 2025 FSA of $5,000 still leaves up to $1,000 for the credit. In 2026 a full $7,500 FSA leaves nothing for the credit, while a smaller election leaves the difference.
- Your nanny builds Social Security credits — the human argument. Under-the-table pay leaves them without a work record.
- Misclassifying as a 1099 contractor is the fastest way to owe back FICA, penalties, and interest if the arrangement is ever reviewed.
Frequently asked
Do I have to pay the nanny tax on $50/week?
Usually not, and the math is the reason: $50/week for a full year is $2,600 (even a 53-payday year produces only $2,650), which stays under the $3,000 threshold for 2026 ($2,800 for 2025). Raise it to $60/week and you reach $3,000 in week 50, and FICA then applies retroactively to every dollar paid that calendar year, not just the amount above the line. Liability begins AT the threshold, not above it, so plan from paycheck one.
What happens at exactly $3,000?
You are at the coverage threshold, so FICA applies. Social Security (6.2%) and Medicare (1.45%) apply on both the employer and the employee side to the full $3,000 — a combined 15.3% or roughly $459 of FICA. The next dollar of wages only adds 15.3 cents; the cliff is at the threshold itself, not later.
Can I just 1099 my nanny?
No. A nanny you supervise in your home is a household employee under IRS common-law rules, not an independent contractor. Issuing a 1099 to sidestep FICA is misclassification — the IRS can assess back taxes, penalties, and interest against you. Agency-employed nannies and self-employed sitters running their own business are the honest exceptions; a nanny where you set the schedule and provide the tools is not.
Does a summer babysitter count?
Usually no, for two reasons. First, if the sitter is under 18 at any time during the year and household work is not their principal occupation (for a student it is not), wages are FICA-exempt regardless of amount. Second, casual short-term work often stays under the annual threshold. If a sitter who was 18 or older all year earns $3,000+ in 2026, though, the rule applies.
Related tools
Sources & References
Primary references used for this content
Household Employer's Tax Guide
Coverage threshold, FICA/FUTA rules, and Schedule H filing.
View on irs.gov
Household Employment Taxes
The form household employers file with their own 1040.
View on irs.gov
Employment Taxes for Household Employees
Plain-English summary of household-employer obligations.
View on irs.gov
✓3 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.