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.

Critical Benefits for California Household Employees.

Protect your future.

Tip: In the print dialog, set Destination to Save as PDF.

Some employees don't think about benefits until they experience an urgent situation.

Don't wait to be paid "on the books".

Paid Family Leave
Disability
Social Security
Medicare
Unemployment
Loans at more affordable rates
Health insurance subsidies
Verifiable income
Earned Income Tax Credit (EITC)

Being paid over the table protects you.

Whether your workplace is in someone's home, vacation home or even a local college club, you qualify for these following benefits when you're on payroll.

1 Paid Family Leave

There are certain moments you simply cannot miss. PFL provides benefits to individuals who need to take time off work to care for a seriously ill child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner. Benefits are also available to new parents who need time to bond with a new child entering their life either by birth, adoption, or foster care placement.

2 Unemployment

You are entitled to receive up to 50% (capped at $450/week) of your salary for six months if you are dismissed from your job through no fault of your own.

3 Loans & Health Insurance Subsidies

Without salary history, loans are difficult to get, especially at a fair rate. Student loans, renting an apartment, mortgages, credit card applications, auto insurance applications and health insurance subsidies all require employment history.

4 Social Security

Save for your future by building up social security, which is based on your 35 highest-earning years. Make sure every year counts.

5 Medicare

Everyone needs health insurance, and even more so when they reach 65. It takes at least 10 years (or 40 credits) working and paying into Medicare to receive any medical coverage at retirement age.

6 Disability

If you are pregnant or become sick or hurt, you'll be covered by disability. You could qualify for a short-term period to receive a weekly benefit, usually a portion of your salary. This can help to tie you over while you recover!

7 Workers' Compensation Insurance

If you get hurt on the job, you can qualify for coverage for lost wages and medical bills related to an injury. This protects the employer too, and is mandatory in California.

Put cash right back into your pocket!

Being paid on the books means you might qualify for the Federal and California Earned Income Tax Credit (EITC).

“Social Security provides an inflation-protected benefit that lasts as long as you live. Benefits are based on how long you've worked, how much you've earned, and when you start receiving benefits. You can outlive your savings and investments, but you can never outlive your Social Security benefit.” – Social Security Administration

“Fortunately, I not only paid the taxes, I had the records to prove it.”
“Once our younger child started school, we no longer needed our nanny, and she went to work for others. One day she called, asking if we had paid taxes on her. I said we had. She needed proof because she had health problems and couldn't work anymore. She needed Social Security income and Medicare benefits. Without those, she couldn't afford the drugs for her heart condition. Fortunately, I not only paid the taxes, I had the records to prove it.”
– a real parent

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Skip the manual work — we handle all of this.

Nest Payroll calculates paychecks, withholds taxes, and files every required form — federal and state — so you don't have to.

Automatic tax calculations & filings
W-2s, Schedule H & quarterly returns included
Compliant in all 50 states

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