2025 Nanny Tax Update: Key Thresholds and Changes Every Household Employer Should Know

If you employ a nanny, caregiver, housekeeper, or any household worker, the IRS adjusts key tax thresholds each year. Here’s what changed for 2025 — and what it means for you as a household employer.

The Household Employer Threshold: $2,800 in 2025

You become a household employer when you pay a single worker $2,800 or more in cash wages during the calendar year (up from $2,700 in 2024). Once you cross that line, you’re responsible for withholding and paying Social Security and Medicare taxes — commonly called FICA. The combined rate is 15.3%, split evenly between you and your employee (7.65% each).

If you’re already paying your nanny or caregiver more than about $54 per week, you’ll likely hit this threshold during the year. It’s better to set up payroll from the start rather than scramble at tax time.

FUTA Threshold: $1,000 Per Quarter

If you pay $1,000 or more in total cash wages to all household employees during any single calendar quarter, you’re also on the hook for federal unemployment tax (FUTA). This threshold hasn’t changed for 2025. FUTA is paid entirely by the employer at 6% on the first $7,000 of each employee’s wages, though most employers receive a credit that reduces the effective rate to 0.6%.

Social Security Wage Base: $176,100

The Social Security wage base for 2025 is $176,100 (up from $168,600 in 2024). This is the maximum amount of an employee’s earnings subject to the 6.2% Social Security tax. For most household employees, total annual wages fall well below this cap, so the practical impact is minimal — but it’s worth noting if you employ a high-earning household manager or estate staff.

Child and Dependent Care Tax Credit: Still Valuable

The Child and Dependent Care Tax Credit continues to let families recover a portion of caregiving expenses. You can claim up to $3,000 in expenses for one dependent or $6,000 for two or more. The credit rate ranges from 20% to 35% of those expenses depending on your income, meaning you could save between $600 and $1,200 per year. Remember: you must pay your caregiver on the books with a W-2 to claim this credit. Paying cash under the table disqualifies you.

Dependent Care FSA: $5,000 Limit Remains

If your employer offers a Dependent Care Flexible Spending Account, you can set aside up to $5,000 per year in pre-tax dollars to pay for childcare expenses (or $2,500 if married filing separately). This is separate from the tax credit above, though you cannot double-dip on the same expenses. Many families find combining a Dependent Care FSA with the tax credit is the most effective strategy for reducing their overall childcare costs.

What This Means for You

If you’re already using Nest Payroll, these threshold updates are handled automatically — we adjust calculations based on current IRS guidelines so you don’t have to worry about it. If you’re new to household employment or have been paying your nanny cash, now is a great time to get compliant. The longer you wait, the more back taxes and penalties can accumulate.

Use our free Nanny Paycheck Calculator to estimate what payroll will cost, or try our Tax Catch-Up Calculator if you need to get current on back wages. Both are free and require no sign-up.

2025 Quick Reference

Household employer threshold (FICA): $2,800/year (was $2,700)

FUTA threshold: $1,000/quarter (unchanged)

Social Security wage base: $176,100 (was $168,600)

Social Security / Medicare rate: 7.65% employee + 7.65% employer

Dependent Care FSA limit: $5,000/year (unchanged)

Child Care Tax Credit: up to $3,000 (one dependent) or $6,000 (two+)

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.

Sources

IRS Publication 926, Household Employer’s Tax Guide

IRS Topic 756, Employment Taxes for Household Employees

Social Security Administration: Contribution and Benefit Base

IRS: Child and Dependent Care Credit Information

IRS: About Schedule H (Form 1040), Household Employment Taxes