If you pay a nanny, housekeeper, caregiver, or other domestic worker, you may have tax obligations the IRS calls the "nanny tax." Most families discover these rules after the fact, which means back taxes and penalties.
Who Counts as a Household Employer?
You are a household employer if you pay someone to perform household services in or around your home and that person works as your employee rather than as an independent contractor. Common examples include nannies, babysitters, housekeepers, cooks, in-home care aides, and property caretakers.
The IRS classifies someone as your employee when you control not just what work is done but how it is done. A nanny who works set hours in your home under your direction is almost certainly an employee regardless of what you call the arrangement.
The $3,000 FICA Threshold for 2026
Pay a household employee $3,000 or more in cash wages during 2026 and you owe Social Security and Medicare (FICA) taxes:
- Employer share: 7.65% (6.2% Social Security plus 1.45% Medicare)
- Employee share: 7.65%, withheld from the employee's paycheck
- Combined FICA rate: 15.3% of gross wages
The threshold applies per employee, per calendar year. Once crossed, FICA applies to every dollar paid that year, not just the wages above $3,000. You can choose to pay both shares yourself rather than withholding from the employee, but the employee then owes income tax on the employer-paid portion.
The $1,000 FUTA Threshold
Federal Unemployment Tax (FUTA) has a separate trigger: pay $1,000 or more in household wages during any single calendar quarter and you owe FUTA for the entire year (reported on Schedule H, Part II).
FUTA is calculated at 6% on the first $7,000 of wages per employee. A credit of up to 5.4% is available when you pay into your state's unemployment system, reducing the effective federal FUTA rate to 0.6%. On the maximum $7,000 wage base, that is $42 in federal FUTA per employee.
The two thresholds are independent. You can owe FUTA without owing FICA if wages spike in one quarter but stay below $3,000 for the full year.
You Need an EIN First
Before you can file Schedule H or issue a W-2, you need an Employer Identification Number (EIN). Apply for one at IRS.gov in minutes using the online EIN assistant. You cannot use your Social Security number on household employment tax forms.
Filing Schedule H
Schedule H is a one-page form attached to your personal Form 1040. It reports total wages paid, FICA taxes (both shares), any federal income tax you withheld from the employee, and FUTA tax owed.
The taxes calculated on Schedule H become part of your total tax liability on Form 1040. There is no separate quarterly deposit requirement for household employers. If you do not adjust your withholding or estimated payments to cover this extra liability, you may owe a balance due at filing along with underpayment penalties. The easiest fix: increase your own Form W-4 withholding with your employer, or make quarterly estimated payments on Form 1040-ES.
Issuing a W-2 to the Employee
By January 31 of the following year, provide each household employee a Form W-2 showing total wages, FICA taxes withheld, and any federal or state income tax withheld. File Copy A of the W-2 with the Social Security Administration by the same January 31 deadline, either through the SSA's Business Services Online portal or on paper.
Why a 1099-NEC Is the Wrong Form
Household employees are employees, not independent contractors. Issuing a Form 1099-NEC instead of a W-2 is incorrect and can trigger IRS notices, back FICA assessments, and interest charges. The worker is also harmed because they lose access to unemployment insurance and may not earn the Social Security credits they are owed.
A true independent contractor sets their own hours, supplies their own tools, and works for multiple clients. A full-time nanny working in your home under your direction does not meet that standard under the IRS behavioral and financial control tests (IRS Publication 15-A).
State-Level Requirements
Most states have their own household employer obligations, including state unemployment insurance and sometimes disability insurance. These vary by state, and the thresholds and rates differ from the federal rules. If you are in a no-income-tax state like Texas, you still need to check whether state unemployment filings apply through your state's workforce commission.
Have questions about Schedule H or household employment taxes? Contact TS CPA for a free consultation. We respond within the same day.