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.

Paid Your Nanny Off the Books? Here's How to Catch Up.

Estimate back taxes owed if you paid your nanny without running payroll.

Nanny Tax Catch-up Calculator

Estimate per employee. Enter wages paid and hours worked per quarter (no overtime/doubletime).

SETTINGS

State

Tax Year

WAGES & HOURS BY QUARTER

Q1 (Jan–Mar)

Wages

$

Hours

Q2 (Apr–Jun)

Wages

$

Hours

Q3 (Jul–Sep)

Wages

$

Hours

Q4 (Oct–Dec)

Wages

$

Hours

FAQs

How do I catch up on nanny taxes?

Enter the wages you paid each quarter into the calculator above to estimate what you owe. Nest Payroll can then help file overdue federal and state payroll tax returns and get your household payroll fully compliant going forward. See how it works →

What happens if I don't pay nanny taxes?

You may owe back nanny taxes plus interest and penalties from both the IRS and your state. Catching up voluntarily usually results in lower penalties than waiting for the IRS to discover the issue. Estimate ongoing payroll costs →

What does this nanny tax catch-up calculator estimate?

It estimates employer payroll taxes owed on past nanny wages, including Social Security, Medicare, federal unemployment (FUTA), and applicable state payroll taxes. Need to gross up wages? →

MORE FREE TOOLS

Nanny Payroll Calculator Estimate take-home pay and employer taxes

Gross-Up Calculator Calculate wages when you cover your nanny's taxes

Nanny Contract Template Create a work agreement for your employee

Paid Your Nanny Off the Books? Here's How to Catch Up.

Nanny Tax Catch-up Calculator

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