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.

Gross-up Calculator — Nest Payroll

Nanny Pay Gross-Up Calculator

Enter the net amount your employee takes home. We'll calculate the gross wages needed so all taxes are covered.

SETTINGS

State

Filing Status

WEEKLY NET PAY

Weekly Take-Home Pay

$

Enter the amount your employee takes home each week, before any tax adjustments.

Hours per Week (optional)

Nanny Pay Gross-Up Calculator FAQs

What does it mean to "gross up" nanny pay?
Grossing up means increasing your employee's wages so that after all taxes are withheld, their take-home pay equals the amount you agreed to pay. For example, if you promised $500/week take-home, the gross pay needs to be higher to cover Social Security, Medicare, and any applicable income taxes. The grossed-up amount is what appears on the W-2.

Why is the grossed-up amount higher than just adding taxes on top? When an employer pays taxes on behalf of an employee, those tax payments are considered additional taxable income by the IRS. This creates a "tax on tax" effect: the taxes you pay become income, which generates more taxes, which is more income, and so on. The gross-up formula mathematically solves this infinite loop so the employee's net pay comes out exactly right.

How does gross-up affect the W-2 and Schedule H? The grossed-up wages appear on the employee's W-2 in Box 1 (Wages), Box 3 (Social Security wages), and Box 5 (Medicare wages) — all three boxes show the same grossed-up amount. The employer reports all taxes, including the employee's share, on Schedule H. The employee has no additional tax liability because all withholding has already been paid.

Payroll tax calculations vary by state and household employment situation. Nest Payroll helps families catch up on unpaid nanny taxes, file overdue payroll tax forms, and stay compliant going forward — all in one place.

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