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.

Have you been paying your nanny or household employee under the table?

Don’t stress, just fix it.

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We make it simple to include catch-up when you onboard.

Completing catch-up is easy.

STEP 1

Tap Manage, select your employee and tap “Request Catch-up”.

STEP 2

Enter the wages you paid and hours worked.

STEP 3

Receive your tax details right away. Authorize us to move forward or not.

What we’ll complete for you:

We will set up your federal and state tax accounts.
We will file the W-2 and your employer W-3 with the Social Security Administration.
We will file and facilitate payment for any taxes owed to your state. States often assess late penalties, we’ll make sure they get paid so you’re in the clear.
Your employee(s) will receive a W-2 for the tax years needed.
We will facilitate your federal tax payment to the IRS for any taxes due.
You, the employer, will receive a Schedule H for your 1040 personal taxes.
We will file any new hire reports to your state as needed.

Wondering how much back nanny taxes you may owe? Use our free Catch-Up Nanny Tax Calculator to estimate the payroll taxes owed based on your wages and state.

Catch-up Pricing: You can choose to include catch-up wages when you onboard. Catch-up is $42/month per employee for previous wages, three months minimum, beginning with your employee’s correct start date, plus a year-end tax work fee of $149 for each catch-up tax year.

Frequently Asked Questions About Catch-Up Nanny Taxes

Do I owe nanny taxes if I paid my nanny cash?
Yes. If you paid a household employee above the IRS threshold, you are required to pay Social Security and Medicare taxes. These are commonly referred to as nanny taxes.

How much are back nanny taxes?
Back nanny taxes typically include Social Security, Medicare, federal unemployment taxes, and state unemployment taxes based on the wages paid.

Can I file nanny taxes late?
Yes. Families can catch up on nanny payroll taxes by reporting past wages and paying any taxes owed. This process often involves filing W-2 forms and including Schedule H with your personal tax return.

Why should you catch up on nanny taxes now? Read 8 Convincing Reasons to Catch Up on Back Wages and Nanny Taxes Now

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