The Nanny Tax: Do You Owe the IRS for Your Babysitter?

Hiring help for your home is a relief, but paying them “under the table” is a risk. If you pay a household employee more than $3,000 in cash wages during the 2026 calendar year, you generally must withhold and pay Social Security and Medicare taxes. This rule applies to nannies, housekeepers, and senior caregivers. Here is how to distinguish an employee from a contractor and handle the taxes correctly.

BMT Tax Team BMT Tax Team · 📅 Feb 2026 · ⏱️ 7 min read · TAX TIPS › FAMILY
Threshold
$3,000
Per Year (2026)Rule
Tax Rate
15.3%
FICA (Total)Fact
Form
Sch H
File with 1040File

1. The Rule: Control = Employment

You cannot simply label a nanny as an “Independent Contractor” to avoid taxes. The IRS uses the “Control Test.”

Household Employee Definition
You are the Boss if: You decide the hours, provide the tools (vacuum, diapers), and direct the specific tasks.
Applies to: Nannies, maids, caretakers, private nurses, yard workers.
Exemptions: Repairmen, lawn services, or plumbers who have their own business and offer services to the general public.

2. Employee vs. Contractor (Checklist)

Use this table to determine your legal status.

Scenario Employee (Tax Due ✅) Contractor (No Tax ❌)
Nanny Uses your home, follows your schedule, paid >$3,000/yr. Babysitter agency (you pay the agency, not the sitter).
Cleaner Comes daily, uses your supplies, works only for you. Maid service (brings own team/supplies).
Lawn Care You hire a neighbor kid to mow weekly using your mower. Landscaping company with own truck/gear.

3. Timeline: The Underpayment Trap

Although you file Schedule H annually, the IRS expects you to pay the taxes throughout the year. Waiting until April 15th can trigger penalties.

Period Action Financial Risk
Quarterly
(Apr/Jun/Sep/Jan)		 Pay 1040-ES
Penalty Avoided
Year End
(Dec 31)		 W-2 Due
Must Send W-2 to Nanny
Tax Day
(Apr 15)		 Lump Sum
Underpayment Penalty Likely
Planning Note
If you employ a nanny, it is generally better to increase your own paycheck withholding or make quarterly estimated tax payments (Form 1040-ES) to cover the household employment taxes and avoid a surprise tax bill.

4. Strategy: Schedule H Simplification

You do not need a separate business tax ID for this.

  • The Mechanism: Use Schedule H (Household Employment Taxes). You attach this to your personal Form 1040.
  • The EIN: You do need an Employer Identification Number (EIN) to issue the W-2, but you don’t need to register a “company.” You can get a “Household Employer EIN” from the IRS website in minutes.
  • The Benefit: Filing Schedule H protects you from audits and allows your employee to build their own Social Security/Medicare credits.

5. Warning: The Unemployment Claim

This is how most “under the table” arrangements get caught.

⛔ The “Nice” Nanny

You pay cash for years. Then you let the nanny go.

  • The Trigger: The nanny applies for unemployment benefits, listing YOU as the employer.
  • The Audit: The state labor board contacts you for unpaid unemployment taxes. They share data with the IRS.
  • The Result: You owe back taxes, penalties, and interest for all previous years.

6. Frequently Asked Questions

Does the $3,000 apply to everyone?
No. Wages paid to your spouse, your child under age 21, or your parent are generally exempt from the Nanny Tax, regardless of the amount paid.
Do I have to withhold income tax?
Generally, no. You are required to pay Social Security & Medicare (FICA). Withholding federal income tax is optional and only required if the employee asks for it.
What is the tax rate?
The total FICA tax is 15.3% (12.4% for Social Security + 2.9% for Medicare). Typically, the employer pays half (7.65%) and withholds the other half (7.65%) from the employee’s pay.