Why You Shouldn’t Give Your Nanny a 1099

One of the most common questions (and misunderstandings) surrounding household employment is whether a family can issue a 1099 to their nanny at tax time and treat them as an independent contractor rather than a household employee.

The short answer is “no.” Your nanny works in your home and takes direction from you, including their schedule of hours. You can’t issue a 1099 to your nanny, and you should provide a W-2 to your in-home employee.

Here’s why and answers to other questions you may have.

Form 1099 vs. W-2 for Nannies and Household Employees

Form 1099 is used to report certain types of miscellaneous (Form 1099-MISC) or non-employee (Form 1099-NEC) compensation.

Non-employee compensation generally includes independent contractors, freelancers, sole proprietors, and self-employed individuals.

These forms generally report payments made “in the course of your business” and not your personal payments. Wages paid to a nanny are not considered business-related, so Form 1099 does not apply to household employment.

Is my nanny an independent contractor or self-employed?

Independent contractors are hired to perform a service. However, you do not have control over how the job is done or when, and the worker uses their own tools, supplies, and equipment.

For example, a small business owner may enlist a graphic designer to create a new logo for their company. The owner may provide details on how they want the logo to look and the colors to incorporate, as well as a deadline for completing the work. But the graphic designer controls the creative process, uses their own software to work on the logo, and works on the project at times of their choosing.

That graphic designer could be classified by that small business owner as an independent contractor.

However, the IRS considers nannies to be employees of the family and not independent contractors.

From the IRS website:

Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee. Repairmen, plumbers, contractors, and other business people who provide their services as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but also how they do it.

In general, you are overseeing how your nanny’s work is done, setting their schedule, and providing the tools and supplies they need to do their job. That makes them an employee and not an independent contractor. If you call your nanny a babysitter, but they still work in your home, they are not an independent contractor either.

You are instructing your nanny on how you would like your child looked after (feeding times, nap times, discipline, screen time, etc.). They also work according to a schedule you determine, typically when you need to be at your job. Your nanny will use your kitchen and utensils to prepare meals and your stroller to take your child for walks.

Your nanny is not going to care for your child in a way that is against your desires. They are also not going to show up at your home when they are not needed to work. And while they may bring some of their own activities to engage your child, they are mainly relying on your supplies to do their job.

The U.S. Department of Labor has also weighed in on employment classification with its employment relationship characteristics. Of note for household employers are “the permanence of the relationship” and economic dependence. When you hire a nanny, they will work for you until the end of the relationship due to a lay-off, termination, or resignation.

An independent contractor understands they will work on a project until its completion, which could signal the end of the relationship.

Your nanny is also generally dependent on their job with you for financial stability. An independent contractor offers their services to multiple businesses, often simultaneously. If they lose a client or a project is completed, they have other clients and work to provide income.

Classification is not based on whether the nanny works full-time or part-time, how they were hired, or how often they are paid.

What are the tax consequences of regarding a nanny as an independent contractor?

By treating a nanny, or any other household employee, as an independent contractor, families shift the entire tax burden to the worker and eliminate most of the paperwork and responsibilities that come with being an employer. In an employee-employer relationship, Social Security and Medicare tax obligations (commonly called FICA taxes) are split evenly. Independent contractors, however, pay both the employee and employer shares of FICA taxes.

What is employee misclassification?

Treating your nanny or babysitter as an independent contractor and not an employee is considered employee misclassification. The IRS deems this tax evasion because you are skipping your employer’s tax responsibilities and leaving the entire obligation on your nanny to pay.

How will the government find out about misclassification?

It’s easy to get caught misclassifying your nanny as an independent contractor. Often, an inadvertent disclosure by your employee can trigger legal and tax issues.

• You and your nanny part ways, and they file for unemployment benefits, which are available only to employees, but there is no record of you, as the employer, contributing unemployment taxes.
• Your nanny leaves your job for another job. They leave that job, file for unemployment, and list you as an employer in their recent employment history.
• You scale back your nanny’s hours, and they file for partial unemployment benefits.
• Your nanny files for disability or paid leave benefits, which are typically only available to employees.

The claim by a current or former nanny may also lead to an audit of your past employment practices, including misclassifying previous employees as independent contractors.

What are the risks of misclassifying a nanny as an independent contractor?

As mentioned, you are committing tax evasion if you issue a 1099 to your nanny. Get caught, and you will owe back taxes, interest, and additional fines that can easily run into the thousands of dollars.

• Your state’s unemployment insurance board may require the retroactive filing of regular payroll withholding reports and the payment of missing contributions, in addition to penalties and interest.
• If workers’ compensation is required for household employers in your state, you may face fines and penalties for not having a policy in place. Fines can be as high as $5,000 for each 10-day period without required coverage.
•  You may need to refile your state and federal tax returns and pay back taxes, penalties, and interest.

You should anticipate that an inquiry into your employment practices by your state’s labor department will be shared with the workers’ compensation board and vice versa.

Also, the IRS, U.S. Department of Labor, and state tax agencies have partnered to share information between agencies to help reduce worker misclassification and facilitate enforcement of the law.

The IRS has no statute of limitations when auditing false or fraudulent returns, including employee misclassification and the collection of back taxes.

What if my nanny asks to be classified as an independent contractor?

You can’t just decide your nanny is an independent contractor, even if they want to be.

Your nanny might prefer to be classified as an independent contractor. They may think it will lower their taxes (it doesn’t) or give them more freedom over their schedule and duties (it shouldn’t). They might even suggest the arrangement themselves and include this language in the contract or work agreement.

However, a signed agreement doesn’t determine the legal reality. State and federal government agencies look at the actual working relationship, not just what your contract says.

If your nanny works regular hours in your home, cares for your children according to your instructions, and uses your supplies, they’re an employee in the eyes of the IRS and your state. It doesn’t matter what you both agreed to call them.

If your arrangement doesn’t hold up legally, your nanny could still file for unemployment benefits, workers’ compensation, and other protections available to employees. The contract you both signed won’t prevent that.

Worker classification is based on the facts of how someone actually works for you, not on what either of you prefers or puts in writing.

What tax forms should my nanny receive?

You must provide your nanny with Form W-2 if you:

• Pay them $3,000 or more in 2026 (or paid them $2,800 or more in 2025) or
• Withheld federal taxes regardless of their wages

Form W-2 must be provided to your nanny by January 31 (for this tax season, the date is February 2, as January 31 falls on a Saturday). A copy of Form W-2 and Form W-3 must be submitted to the Social Security Administration by that same date.

If you are paying your spouse, a child under the age of 21, a parent, or anyone under the age of 18, you do not need to pay or withhold employment taxes. There is no need to supply a W-2 to those workers.

However, if you pay someone under the age of 18 $1,000 or more during any calendar quarter, then you are subject to federal unemployment taxes and possibly state unemployment.

There is an exception. Wages paid to someone under the age of 18 are counted if “providing household services is the employee’s principal occupation.” If the employee is a student, providing household services isn’t considered to be their principal occupation.

For you, file Schedule H with your personal tax return. This form is where you report household employment taxes to the IRS.

What taxes are owed when employing a nanny?

You will owe 7.65 percent of your nanny’s cash wages in FICA taxes (6.2 percent for Social Security and 1.45 percent for Medicare). You are also required to withhold the same amount from your employee’s pay and remit both shares to the IRS.

On top of FICA taxes, you will pay six percent in federal unemployment taxes on the first $7,000 in cash wages. This is an employer-only tax. You will likely owe state unemployment as well. However, you may be able to take a credit against your federal unemployment taxes and reduce that rate to 0.6 percent.

While you are not required to withhold federal income tax from your nanny’s pay, it may be a good idea, so they are not stuck with their entire tax obligation when they file their return.

The easiest way to remit federal taxes – both employer and employee shares – is to make quarterly payments using Form 1040-ES.

IRS Publication 926 (Household Employer’s Tax Guide), as well as our Nanny Tax Guide, are excellent resources to learn about your responsibilities as a household employer.

Are there benefits to treating my nanny as an employee?

For you, there is the Child and Dependent Care Tax Credit, which you can claim on your personal tax return.

For the 2025 tax year (returns filed by April 15, 2026), a family with one child can claim up to $3,000 in child care expenses, such as wages paid to a nanny. For families with two or more children, that limit is $6,000.

The credit is typically 20 percent of expenses, so $600 for one child and $1,200 for two or more children.

Then there is a Dependent Care FSA offered through your employer. This is a pre-tax benefit account used to pay for qualified out-of-pocket dependent care expenses, such as your nanny’s wages. By putting money into a Dependent Care FSA, you will reduce your overall tax obligation as funds are withdrawn from your pay and placed into your account before taxes are deducted. It lowers your taxable income (both for income and FICA taxes), so you end up paying less in taxes. How much you can save in taxes depends on your tax bracket and your state and/or local income tax rates. But most families will see at least a few – if not several – thousand dollars in tax savings.

Your nanny is covered by workers’ compensation insurance if they are injured or become ill while on the job. They also receive unemployment benefits if they lose their job through no fault of their own, are usually covered by state-mandated paid sick and family leave, and other domestic worker protections. These benefits typically do not apply to independent contractors.

What if my caregiver provides services out of their own home?

If you bring your child to the caregiver’s home, the caregiver is not a household employee. That caregiver is self-employed and doing business as a sole proprietor. They do not receive a W-2 or a 1099 from you. You would pay them as you would any other service. Paying by check or electronically – rather than cash – would be best so there is a record of payments.

Make sure to get their Social Security Number or Employer Identification Number so you can claim the Child and Dependent Care Tax Credit on your tax return and use a Dependent Care FSA to reimburse your childcare expenses.

The caregiver would be responsible for reporting their income on their own tax return.

What if I am in a nanny share?

In a nanny share – where multiple families hire one caregiver to care for all children out of one of the family’s homes – the nanny is considered an employee of each family. They will receive a paycheck from each family on payday and a W-2 from each family at the end of the year. Learn more about how to set up a nanny share and understand taxes and payroll.

GTM can help

If you have questions about your nanny as an employee or need assistance in setting up payroll and taxes the right way, give us a call at (800) 929-9213. We offer complimentary, no-obligation consultations with household employment experts. You can even schedule time with us at your convenience. GTM can also handle all the paperwork required to be an employer, pay your nanny, and handle taxes. It really can be that easy.

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