Why Paying Nanny Taxes Matters

The Employment Coverage Threshold for household employees, or “the nanny tax threshold,” for 2025 is $2,800. If you pay more than that amount to your nanny or any other household employee during the calendar year, you must pay employment taxes.

As a responsible employer, paying your nanny’s taxes is essential. It offers significant benefits for both you and your nanny, all of which outweigh the cost of paying illegally.

Benefits for Your Nanny

• Financial Security: Ensures your nanny has a documented work history, allowing them to qualify for benefits like unemployment insurance, Social Security, and Medicare.
• Provides Credit History: A strong work history with tax records can help your nanny build credit and qualify for loans, mortgages, and rental agreements.

Benefits for You

• Peace of Mind: Avoid potential legal issues and IRS penalties by complying with tax laws. You also protect yourself from potential wage disputes by having everything documented.
• Stronger Employer-Employee Relationship: Paying legally means you generally will attract more qualified candidates. Nannies who view childcare as their chosen career want to be treated like professionals and enjoy the same benefits of legal pay as those in the traditional workforce. It also shows your commitment to fair labor practices and can lead to a more positive working relationship.

How Much Do Nanny Taxes Cost?

Nanny taxes typically add about 9-12% to your nanny’s gross wages, but this can vary by state. Factors like Social Security (6.2%), Medicare (1.45%), federal unemployment, and specific state unemployment taxes and workers’ compensation requirements contribute to this total. Use our nanny tax calculator to estimate costs for your specific situation.

How to Reduce Your Nanny Taxes

There are also ways to reduce the cost of nanny taxes, including a Dependent Care FSA and the Child and Dependent Care Tax Credit. Read more here.

Need More Information?

To get a complimentary, no-obligation consultation with a household employment expert, call (800) 929-9213.

Hiring a nanny?

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