Nanny taxes 2026: what to do after the background check
Figures checked against IRS Publication 926 (2026 edition), the 2026 General Instructions for Forms W-2 and W-3, and Department of Labor Fact Sheets #79B and #79C on September 30, 2026. General information, not tax or legal advice for your situation.
If you’re reading this you’ve probably just run a background check on someone you’re about to hire to look after your kids, which means the next thing on your list is figuring out what you owe once they start. I run a payroll company for families, so I get asked this a lot, and the answer is shorter than most people expect. There are a few federal rules, a few state ones, and then a decision about how much of it you want to do yourself.
The day your nanny starts, you become an employer
The IRS puts it plainly:
“You have a household employee if you hired someone to do household work and that worker is your employee. The worker is your employee if you can control not only what work is done, but how it is done.”
IRS Publication 926, Household Employer’s Tax Guide, 2026 edition, “Do You Have a Household Employee?”
A nanny who works in your home on your schedule is about as clear a case as the IRS has, so there’s no point trying to argue your way into contractor status. You haven’t started a business, but you are somebody’s employer now, and a few forms come with that.
The federal taxes, and when they start
The first one is Social Security and Medicare, and it kicks in once you pay a nanny $3,000 or more in cash wages during 2026. Once you cross that line, every dollar of cash wages you paid that nanny in 2026 counts, not just the part above $3,000, which surprises people who assumed the first $3,000 was free. Your share is 7.65% of wages (6.2% for Social Security and 1.45% for Medicare), and your nanny owes a matching 7.65%, which you normally withhold from each paycheck.
The second is federal unemployment tax, FUTA, and it has its own trigger: $1,000 or more in cash wages to all the household workers you pay, combined, in any calendar quarter of 2025 or 2026. It’s 6% of the first $7,000 you pay each worker in a year, and as long as you pay your state unemployment tax on time, a credit of up to 5.4% brings it down to a net 0.6% in most states. FUTA is yours alone; nothing comes out of your nanny’s check for it.
If you want to see what a given hourly rate actually costs you all-in for your state, NannyKeeper’s free nanny tax calculator does that math.
Income tax withholding is your nanny’s call
This one is different from a business. You are not required to withhold federal income tax from a nanny’s wages, and you only do it if your nanny asks and you agree, on a Form W-4. I’d say yes if asked, because the tax doesn’t go away either way; it just shows up on your nanny’s own return in April, and most people would rather have it taken out a little at a time.
Two forms close out the year
For 2026 wages, you give your nanny Copies B, C and 2 of Form W-2 by February 1, 2027 (January 31 is a Sunday that year), and you send Copy A with Form W-3 to the Social Security Administration by the same date. Then you report the year’s household employment taxes on Schedule H, which is filed with your own 2026 federal income tax return by April 15, 2027.
Because the tax comes due with your own return, the IRS suggests covering it during the year, either by asking your employer to withhold more from your paycheck or by making estimated tax payments. If you do neither you can owe an estimated tax underpayment penalty on top. I’d take the extra withholding, since it’s one form at your job and then you can forget about it.
Two smaller things sit alongside the forms. You and your nanny each fill out your part of Form I-9 (your nanny’s section is due by the first day of work), and you have to ask for their Social Security number by the first day you pay wages. You’ll also need an EIN on the forms you file, which the IRS issues online at no charge at the end of the session.
Wages, hours and your state’s list
Federal wage-and-hour law covers your nanny too. A domestic worker in a private home has to be paid at least the federal minimum wage for all hours worked, and overtime at one and a half times the regular rate for hours over 40 in a workweek. A nanny who lives with you full-time is exempt from the federal overtime rule (not the minimum wage rule), but several states require overtime for live-in workers anyway, so check your state before you assume. The Department of Labor also expects you to keep a record of hours worked each day and cash wages paid each week, which is easy to skip and painful to reconstruct later.
On the state side, the IRS tells you to contact your state unemployment agency to find out whether you owe state unemployment tax, and to “also determine if you need to pay or collect other state employment taxes or carry workers’ compensation insurance.” Depending on where you live, your state may also require a higher minimum wage, overtime for live-in workers, workers’ comp coverage, a paid leave contribution, or a written agreement with a domestic worker. The state-by-state household employer pages list what applies where you live.
Even where nothing requires a written agreement, I’d write one anyway. Put in the hours, the rate, overtime, paid time off, and what happens when school closes for snow, because all of that is much easier to agree on in October than during a bad week in March.
Paying legally versus paying cash
I won’t pretend cash is rare. What it costs your nanny is Social Security credit toward retirement and a documented income for the day they apply for an apartment or a car loan. What it costs you is exposure, because the taxes above are still owed whether or not anyone filed, and when they come back later they come with penalties and interest. The real gap between cash and legal is your 7.65% share, a small FUTA amount, and whatever your state charges, which is less than most people guess.
Four ways to run payroll
You can do it all yourself, and plenty of families do. It costs nothing but evenings: you track wages against the $3,000 line, do the 7.65% math on every paycheck, register with your state, and produce the W-2 by the start of February and Schedule H in April. In my experience what goes wrong is rarely the math. It’s forgetting the state registration in month two, or the W-2 in the last week of January.
A general small-business payroll tool handles the paycheck math and direct deposit well, since that part is the same for a company. What I’d ask is whether it produces a Schedule H at all, and whether it knows how your state registers a household employer, because these tools are built around business filings a family never makes and you pay for those filings whether or not you use them.
A household payroll service is built around Schedule H, the W-2 and state registration for families, and here you’ll run into two models. Some services calculate everything, generate every form, remind you before each deadline, and you press submit yourself and pay the IRS from your own account. Others file for you, which is what “full service” usually means, and for that they’ll have you sign an authorization, often a power of attorney, over your federal and state tax accounts. I built NannyKeeper on the first model, and not only because it’s cheaper. Household taxes are reported on Schedule H under your own Social Security number, so the IRS holds you responsible for the numbers no matter who pressed submit, and every full-service accuracy guarantee I’ve read reimburses a penalty when the error was theirs, never the tax itself. When you file yourself you see every number before it goes in, so you catch a mistake before it’s submitted rather than after a notice arrives, and it takes about 15 minutes a quarter. Full service moves the clicking off your plate. It doesn’t move the responsibility, and I think most families are better off keeping their hands on the forms. This comparison of nanny payroll services lines all the options up, ours included.
An accountant makes sense if you already have one for your return, since Schedule H is just a schedule on that return. Most won’t run weekly paychecks though, so you’d still need something for pay stubs and withholding, on top of their fee.
| Paycheck math | Schedule H and W-2 | Who files | What it costs | |
|---|---|---|---|---|
| Do it yourself | You, every payday | You build them | You | Your evenings |
| General payroll tool | The tool | Ask; not all do | You | A business-sized monthly fee |
| Household payroll service | The service | The service | You, or the service under an authorization | A household-sized fee, sometimes with year-end extra |
| Accountant | Usually not | The accountant, at tax time | You, with your return | Their fee, plus something for paychecks |
Questions to ask before you pick
Whichever way you lean, I’d ask the same things of any of them. Does it produce Schedule H and a household W-2? Who files, and who is on the hook if a number is wrong? Is year-end extra? Does it register you with your state, or show you how? Can your nanny see their own pay stubs? And what does it cost to leave?
You did the careful part when you ran the background check. This part is duller, but it goes fine for most families once they know the calendar.