Nanny Payroll & Tax Service

Answer – Yes. As a household employer, you must withhold Social Security and Medicare taxes if you pay cash wages of $2,800 or more in 2025 (or $2,700 in 2024) to your employee. Employers are not required to withhold federal and state income taxes unless both parties agree upon it. If income taxes are not withheld throughout the year, your nanny will be responsible for paying them at the end of the year. If you pay a total of $1,000 or more per quarter to a household employee, you must pay federal unemployment tax. This does not apply if your household employee is your spouse, child under age 21, parent, or any employee under 18 at any time in the current tax year.

Answer – You are responsible for paying 7.65 percent of your employee’s gross pay in Social Security and Medicare taxes, which you can remit quarterly. Your employee will be responsible for the same amount, which is required to be withheld from their pay each pay period. Each of you will pay 6.2 percent towards Social Security and 1.45 percent to Medicare. Your employee will also owe income tax.

You will also pay FUTA (federal unemployment tax), which is six percent of wages up to $7,000 in earnings as well as state unemployment taxes, which vary by state. Your employee is not responsible for unemployment taxes.

Answer – The IRS estimates that it takes a household employer 60 hours each year to comply with all federal and state tax laws. It can get complicated and time-consuming. You’ll need to adhere to all applicable federal and state tax, labor, and wage laws like the Fair Labor Standards Act, paid sick and family leave programs, and domestic worker protection laws. Some household employers rely on their accountant or a firm like GTM Payroll Services to handle payroll processing and tax filings.

Before handling nanny taxes and payroll on your own, we suggest you visit The Complete Guide to Household Payroll. This guide will help you every step of the way and explain what you need to do and why. There’s even a handy checklist and payroll calendar at the end of the guide to use as references.

However you proceed, it’s important to do it the right way. There can be steep financial consequences if you fail to properly pay your nanny taxes.

Answer – Not paying payroll taxes could result in hefty fines and penalties, and possible legal action by your employee. It’s not that difficult to get caught. Your nanny files for unemployment, gets hurt on the job, or sues you for not paying at minimum wage or overtime. Paying your nanny “under the table” and getting caught could also trigger an IRS audit. Not paying proper taxes can also derail career opportunities and not just for government positions. For jobs that require a government security clearance, you’ll be asked if you failed to pay any taxes when required by law.

Answer – No. There are specific differences between an employee and an independent contractor. An employee is a person who takes instruction from the employer, has a schedule set by the employer, and uses tools and equipment provided by the employer. An independent contractor is a person who works under their own conditions, sets their own schedule, and uses their own supplies. Nannies who work in an employer’s home, whether it be on a temporary or full-time basis, are considered household employees, not independent contractors because they work under the family’s control and have their schedule and pay set by the family. In the past, the IRS has made determinations that caregivers are considered employees and it is illegal for a family to treat them as independent contractors.