Do I have to pay taxes if I hire a nanny?

Yes. If you pay a household employee $2,800 or more in 2025 ($3,000 in 2026), the IRS considers them a household employee and requires you to withhold and pay Social Security, Medicare (FICA), and federal/state unemployment taxes. This is commonly called the nanny tax. Failing to pay can result in penalties, back taxes, and interest.

Is my nanny a W-2 or 1099 employee?

Nearly always a W-2 employee. Because you control when, where, and how your nanny works, the IRS classifies them as a household employee — not an independent contractor. Issuing a 1099 instead of a W-2 is a common mistake that can trigger IRS penalties for both you and your nanny.

What happens if I pay my nanny under the table?

You risk IRS penalties including back taxes, interest, and fines that can exceed the original amount owed. If your nanny files for unemployment or gets injured on the job, you could face additional legal and financial liability. The good news: you can get caught up and become compliant retroactively. Use our free catch-up calculator to see exactly what you'd owe.

What is Schedule H and do I need to file it?

Schedule H (Form 1040) is the IRS form used to report household employment taxes. You must file it with your personal tax return if you paid a household employee above the annual wage threshold. It covers Social Security, Medicare, and federal unemployment tax (FUTA) for your employee.

How much does a nanny payroll service cost?

Nanny payroll services typically range from $39 to $75+ per month. Nest Payroll is $42/month with everything included — payroll processing, tax withholding, quarterly filings, year-end W-2s, and Schedule H preparation. There are no setup fees, and you can try it free for 14 days.

How do I set up payroll for my nanny?

You'll need to apply for an employer identification number (EIN), register for state tax accounts, determine the correct withholdings, and set up a system for regular pay stubs and tax filings. With a payroll service like Nest Payroll, this entire process takes about 5 minutes — we handle the EIN, state registrations, and all filings for you.

Can I get in trouble for not filing nanny taxes in previous years?

Yes, the IRS can assess back taxes, penalties, and interest for unfiled nanny taxes. However, voluntarily getting compliant before the IRS contacts you typically results in far lower penalties than being caught in an audit. Nest Payroll offers a dedicated catch-up service — use our free catch-up calculator to estimate what you owe, and we'll handle the rest.

What tax forms do I need to give my nanny?

You need to provide your nanny with a W-2 by January 31 each year. You'll also file a W-3 (transmittal form) with the Social Security Administration, and report household employment taxes on Schedule H attached to your personal Form 1040. Quarterly state filings may also be required depending on your state.

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Save Money By Being "On The Books"

How can paying legally cost less for the Employer?

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How to Manage Household Payroll On Your Own

How to Manage Household Payroll On Your Own

Managing payroll for household employees like nannies or housekeepers can feel overwhelming, but it’s essential to ensure compliance with tax and labor laws. If you pay someone $2,800/year or more, or $1,000/quarter, you're considered a household employer, and these 12 steps outline how to do it legally. From verifying work authorization (Form I-9) and setting up an Employer Identification Number (EIN) to registering with your state, securing workers’ compensation, and withholding taxes, this guide walks you through the process.

Each step, including quarterly filings, year-end W-2s, and adherence to the Domestic Worker’s Bill of Rights, ensures you protect both your household and your employee. Tools like Nest Payroll can help streamline these requirements, making household payroll management easier than ever.

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Building a Strong Foundation: Tackling Five Common Nanny Pitfalls Head-On for Long-Term Success

Feeling the urgency to secure the best care for your kids? While finding the perfect nanny might make you wish you could have started 'yesterday,' rushing without proper consideration can lead to critical mistakes. Discover the top 5 pitfalls many employers overlook and learn why rectifying them is crucial for long-term success. Whether you're in the initial hiring process or already have a nanny on board, it's never too late to make the right changes. From legal payment practices to essential insurance coverage, we've compiled the resources you need for a smooth and secure childcare experience. Take the time to avoid these common missteps now, and ensure a worry-free relationship with your nanny.