Should I Pay My Nanny On The Books?
Updated December 12, 2024
“Our first full-time babysitter asked us not to put her on the books, so we didn't. Big mistake. When we had to let her go because things weren't working out, she said she might file for unemployment. We scrambled to pay the back dated taxes …the process was time-consuming, costly and nerve-wracking.”- a parent/nanny employer
The short answer is yes! If you’re paying over $2,800 in 2025, did you know it’s the law to pay above board? In your state, the nanny tax threshold is even less, typically $1,000 in a quarter. Many people think nannies and caregivers are independent contractors. They are actually your employee, even if they only work part-time or for multiple families. The IRS is really clear that you are required to withhold and pay employer taxes. If your employee needs more information about being paid on the books, here's what to say.
Why does paying on the books even matter?
It benefits everyone: Your employee receives the safety net of unemployment insurance, Social Security, Medicare, the ability to build credit, and verifiable income for basic needs like renting an apartment or obtaining health insurance on the exchange. You’ll sleep better knowing you’re protected from fines, penalties, wage theft lawsuits and risk to your professional career that can be triggered when a former employee files for unemployment. Did you know that an attorney who is charged with failure to pay the nanny taxes (tax fraud) can be disbarred, and a medical doctor can lose his or her license to practice?
Many households found themselves in a mess back in 2020 when they had to let their employee go because of COVID and unemployment claims were filed. No one can qualify for unemployment unless they are paid legally. Those families had to spend countless and frustrating hours fixing the situation with their state and the IRS.
What are the expected nanny tax costs?
You might think it’s expensive to pay employer taxes, but it really isn’t. Budget about 10% more that the gross pay for your employee, which is well worth the peace of mind you’ll get for following the law. And paying above board means you can take advantage of tax credits for dependent care. Many families break even on the extra tax they pay.
What can happen if you pay your nanny under the table?
Your nanny can file for unemployment benefits which would immediately bring attention to unpaid payroll taxes and potentially lead to fines, penalties, etc. Further, regardless of employment status, domestic employees are protected from wage theft and can easily initiate a wage theft claim (that can range from minimum wage or overtime issues to lack of social security and medicare). If your employee doesn’t have an SSN, labor laws and tax laws still apply.
How much work will filing nanny taxes involve?
Well, the IRS estimates 60+ hours a year if you do it yourself (and we don’t think they counted the state tax work). If you use Nest Payroll, then there’s no tax work for you. You simply enter hours to pay your nanny each week, and everything else is done for you.
What benefits are there for paying the nanny taxes?
You'll stay legally compliant and will have the documentation to prove it.
Any employee, whether paid legally or not, can make a claim for unemployment. The IRS will enforce this and you want to avoid being penalized and losing tax credit refunds.
You can get a tax break if you hired a nanny/caregiver so you (or you and your spouse) can work, which can greatly offset your employer taxes. The Dependent Care FSA tax break usually is limited to enrollment once during the year, however a significant event could trigger the ability to enroll at a different time. Enroll now if your company has this!
You are an attorney, doctor, government employee, high-level employee or licensed to work in the regulated finance industry, and it’s critical you stay above board for your career.
You elected to use a pre-tax FSA (Financial Spending Account) for dependent care through your company, and the only way to get the tax savings is to pay the employment taxes.
Your employee needs verifiable income for basics like applying for a loan or renting an apartment.
Your employee needs the safety nets that come with paying taxes: Unemployment, Social Security and Medicare, and in some states disability and paid family leave.
You can contribute to your employee’s health insurance premium as a tax-free boost to your employee's wages, which helps both of you save money (Nest Payroll makes this easy). Typical employer contributions we're seeing range from $50 to $200 each month.
Bonus reason: It's the ethical thing to do and you'll sleep better.
If you need help with your nanny taxes, sign up with Nest Payroll and give it a go.
Setup takes 5 minutes.
You get walked through three easy steps to get going
After adding your employee, it takes seconds to pay them each week.
Professional pay stubs are automatically emailed to your employee. You can also set the pay stubs to be recurring, or set payroll reminders.
All tax work is completed behind the scenes so you don't do anything. This includes setting up your accounts, state and federal reporting and filing each quarter, W-2s at year-end and a signature-ready Schedule H that goes with your personal taxes each April.
The information provided on this page is general in nature. This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult an attorney or financial advisor for your specific situation.