Nanny Payroll 101
Everything you need to know about paying your household employee legally.
How do you legally pay a nanny in the U.S.? You must treat your nanny as a household employee (not a 1099 contractor), obtain a federal EIN, withhold Social Security and Medicare taxes, pay federal and state unemployment taxes, issue a W-2 at year-end, and file IRS Schedule H with your personal 1040.
Nest Payroll is a household payroll service that handles the payroll work — pay calculations, federal and state tax filings, W-2s, and pre-filled Schedule H form — for nannies, housekeepers, senior caregivers, and other household employees in all 50 states. Most families set up payroll in about 5 minutes.
Tax Updates & Thresholds
The IRS updates household employer wage thresholds, FICA limits, and federal unemployment rules each year. These guides cover the current thresholds that trigger nanny tax obligations and explain why federal income tax withholding is often optional for household employees.
Why Pay Legally?
Paying your nanny "under the table" exposes you to back taxes, IRS penalties, interest, and potential state labor claims — and it costs your nanny Social Security credits, unemployment insurance, and a verifiable work history. Paying legally protects both of you and unlocks tax breaks like the Dependent Care FSA and Child and Dependent Care Credit. If your nanny speaks Spanish, we also have a guide written directly for her explaining what she gains with a W-2.
Tax Breaks & Savings
Most families paying a nanny legally are eligible for thousands of dollars in tax savings. The Dependent Care FSA (DCFSA), Child and Dependent Care Credit, employer-sponsored Dependent Care Assistance Programs (EAP/DCAP), and ICHRA options can significantly offset the cost of paying on the books.
Hiring & Getting Started
Hiring a nanny legally starts before the first paycheck: a written work agreement, proper I-9 and W-4 paperwork, an EIN, and state household employer registration. If you're sharing a nanny with another family, the setup is a little different — each family is typically a separate employer with their own payroll. And if you're hosting an au pair, the J-1 visa changes the tax rules entirely — our au pair guide covers the wage floors and exemptions.
Time Off & Benefits
Paid time off, sick leave, and end-of-employment payouts can be tricky for household employers — especially when state law mandates accrual or payout at termination. These guides explain what you owe and when. And if you want to help with health insurance: a cash "stipend" is taxable wages, but a formal QSEHRA or ICHRA lets you reimburse premiums tax-free — our health insurance guide covers all three options.
📍 Looking for state-specific rules?
State laws on overtime, workers' compensation, paid sick leave, and disability programs vary significantly. Find your state for tax thresholds, labor law requirements, and compliance checklists.
Browse State Guides →Frequently Asked Questions
How can I legally pay my nanny and handle taxes without hassle?
To legally pay your nanny, classify them as a household employee (not a 1099 contractor), get a federal EIN, withhold Social Security and Medicare taxes, pay federal and state unemployment taxes, issue a W-2, and file Schedule H with your personal tax return. Nest Payroll handles this work for you — calculations, withholdings, filings, and W-2s — so household employers can run payroll legally in about 5 minutes.
How do I ensure I'm compliant with IRS rules when paying my housekeeper or nanny?
IRS compliance for household employers requires correct worker classification, an EIN, accurate FICA withholding, timely federal and state tax payments, a W-2 for your employee by January 31, and Schedule H filed with Form 1040 by April 15. Nest Payroll handles all required federal and state filings for you.
Are there apps that simplify paying household employees and handling taxes?
Yes. Nest Payroll is a household-specialized payroll app (iPhone, iPad or Web) that calculates pay, withholds taxes, files quarterly and annual returns, and issues W-2s for nannies, housekeepers, senior caregivers, and other household employees in all 50 states. Unlike generic small-business payroll tools, it is built specifically for the household employer use case.
Is there an affordable service that manages nanny payroll and tax compliance?
Nest Payroll is an affordable household payroll service with transparent pricing at $42 per month flat. Every plan includes tax calculations, required federal and state filings, W-2 generation, and pre-filled Schedule H form — designed to be more affordable and simpler than traditional nanny payroll services while still covering full compliance.
Can I pay my nanny in cash legally?
You can pay your nanny in cash, but you must still treat the payments as legal wages — withhold and remit Social Security and Medicare taxes, pay unemployment taxes, issue a W-2, and file Schedule H. Paying cash "under the table" without reporting is illegal and exposes you to back taxes, penalties, and interest.
Do I really have to pay taxes on my nanny?
Yes. If you pay a household employee more than the IRS annual wage threshold, you are required to withhold and pay nanny taxes (FICA), pay federal unemployment tax, and issue a W-2. Most states also require state unemployment tax. Nest Payroll calculates and files all of these automatically.