I hired a nanny in 2025 — what taxes do I owe, and how does Schedule H work?
If you hire someone to work in or around your home — a nanny, housekeeper, caregiver, or personal driver — and you control what work they do and how they do it, they are likely a household employee under IRS rules. This triggers the "nanny tax," which means you become a household employer with real payroll tax obligations.
When the nanny tax applies in 2025:
- You paid any single household employee $2,800 or more in cash wages during the year (the 2025 threshold, up from $2,700 in 2024)
- You paid any household employees a total of $1,000 or more in any calendar quarter (this triggers FUTA — federal unemployment tax)
What taxes you owe as the employer:
| Tax | Rate | Who Pays |
|---|---|---|
| Social Security (FICA) | 6.2% of wages | You + employee each pay 6.2% |
| Medicare | 1.45% of wages | You + employee each pay 1.45% |
| Federal Unemployment (FUTA) | 6% on first $7,000 (often reduced) | Employer only |
| State unemployment | Varies | Check your state |
You can either withhold the employee's share from their paycheck or pay the entire amount yourself (which increases their wages). Many families pay it all themselves for simplicity.
How to handle it:
- Get an EIN (Employer Identification Number) at IRS.gov — you need this to file employment taxes
- Verify the employee's identity: Have them complete Form I-9 and Form W-4
- Pay and withhold taxes throughout the year, OR make one adjustment at tax time
- File Schedule H with your personal Form 1040 — this calculates the total household employment taxes you owe
- Issue Form W-2 to your employee by January 31 of the following year
Common mistakes:
- Treating a nanny as an independent contractor (1099): The IRS looks at control. If you set the schedule, provide the workplace (your home), and direct how care is provided, they are an employee — not a contractor. Misclassification can trigger back taxes and penalties.
- Paying under the table: If your employee ever applies for unemployment or Social Security, the lack of reported wages can create problems for both of you.
Tax break for you: If your employer offers a Dependent Care FSA, you can shelter up to $5,000 per year pre-tax for qualified childcare expenses, including a nanny. Alternatively, you may claim the Child and Dependent Care Credit on Form 2441 for up to $3,000 of expenses (one child) or $6,000 (two or more).
Sources
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