Nanny Tax Threshold Increases for 2025

Oct 23, 2024 | Household Payroll & Taxes, Tax & Wage Laws

The Social Security Administration recently released next year’s Employment Coverage Threshold for household employees, commonly called the “nanny tax threshold.”

The Social Security Administration (SSA) recently released next year’s Employment Coverage Threshold for household employees, commonly called the “nanny tax threshold.” The 2025 nanny tax threshold increases by $100 to $2,800, marking the sixth consecutive year this threshold has increased.

If a nanny or other household employee, such as a housekeeper, private teacher, or in-home senior caregiver, earns $2,800 or more in cash wages in 2025, the family and the employee must pay Social Security and Medicare taxes, commonly called FICA taxes or “nanny taxes.” Earnings below the nanny tax threshold aren’t taxable under Social Security.

Most industries have no employment coverage threshold, so every dollar of wages is covered by Social Security and taxable.

Household employment is one of the industries with an employment coverage threshold. The nanny tax threshold may change year-to-year based on the national average wage index and is set by the SSA every October.

More information on how the nanny tax threshold is calculated.

While many full- and part-time household employees will exceed the nanny tax threshold, temporary or seasonal domestic workers like summer and after-school nannies can easily reach that threshold and trigger nanny tax compliance.

The nanny tax threshold does not apply to wages paid to a spouse, a child under 21, a parent, or an employee under 18.

Social Security and Medicare taxes are 15.3 percent of an employee’s cash wages. The employer (family) pays 7.65 percent (Social Security at 6.2 percent and Medicare at 1.45 percent), while the same amount can be withheld from the employee’s pay, or the family can pay their worker’s share and not withhold.

Families may also owe federal and state unemployment taxes. If a household employee is paid $1,000 or more in any calendar quarter, the family must pay six percent federal unemployment taxes on the first $7,000 in wages. State unemployment tax rates vary. This is an employer-only tax. Wages paid to a spouse, a child under 21, or a parent do not count toward unemployment taxes.

Introduced by the Social Security Domestic Employment Reform Act of 1994, the current version of the nanny tax threshold aims to simplify employment taxes on domestic services. The law also coordinated remitting nanny taxes with the collection of income taxes.

GTM can help

Nanny taxes can be time-consuming and a big hassle. Spend your time doing something – anything else – rather than figuring out your nanny taxes. Let the household employment experts at GTM Payroll Services manage nanny taxes and payroll for you. We will set you up as an employer, get your employee paid the right way, and remit all employee and employer taxes to federal and state agencies. It really can be that easy. Questions about hiring or employing a nanny? Want to learn more about our services? Call (800) 929-9213 for a complimentary, no-obligation consultation. Or schedule time with us at your convenience.