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.

Three steps to stress-free payroll.

Set up in 5 minutes. We handle everything else.

Sign up and add your employee

Create your account in your browser or download the app. Enter your basic employer information and authorize Nest Payroll to handle your tax work. Add your employee's details, set their pay rate, and configure vacation and sick time tracking.

Run payroll each pay period

Enter hours for the week and pay using integrated payments (Cash App, Venmo) or separately by check. Professional pay stubs are generated automatically. Set up recurring pay so you never forget.

We take care of everything else

Taxes are calculated automatically each pay period. We file your quarterly returns, make tax payments, and at year-end we prepare your W-2s, W-3, and Schedule H — all included.

What we handle for you.

So you can focus on your family, not your filings.

Federal taxes

Obtain your Federal EIN
Quarterly estimated IRS tax payments (FICA/FIT)
Year-end: W-2s, W-3, Schedule H

State taxes

File your state's new employer registration
Register and maintain state tax accounts
Quarterly and annual state tax filings

Payments & pay stubs

Pay by Cash App, Venmo, or check
Professional pay stubs generated automatically
Employees can view pay history anytime

Compliance & support

Compliant in all 50 states
Tax payments made directly when due
Concierge support to help with hiring and tax questions

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WANT TO EXPLORE FIRST?

Nanny Payroll Calculator Estimate take-home pay and employer taxes

Catch-Up Calculator Estimate back taxes if you've been paying cash

Nanny Contract Template Create a work agreement for your employee

Three steps to stress-free payroll.

Sign up and add your employee

Run payroll each pay period

We take care of everything else

What we handle for you.

Federal taxes

State taxes

Payments & pay stubs

Compliance & support

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