Household employee payroll tax applies when you hire someone to work in or around your home and you control both what they do and how they do it. Nannies, housekeepers, and in home caregivers are employees under IRS rules. That makes you a household employer, responsible for withholding, tax payments, and a Form W-2 at year end.
Two numbers drive household employment taxes in 2026. Pay any one household employee $3,000 or more in cash wages during the year and you owe Social Security and Medicare taxes on every dollar you paid that person. Pay $1,000 or more in total household wages in any single calendar quarter and you owe federal unemployment tax. The two tests work independently, and missing the second one is the most common filing error.
What is household employee payroll tax?
Household employee payroll tax is the set of employment taxes a family owes when it employs a domestic worker. It has three parts: Social Security and Medicare tax, known together as FICA, federal unemployment tax, or FUTA, and state unemployment tax in nearly every state.
You report and pay the federal portion once a year on Schedule H, filed with your personal Form 1040. Unlike a business, you do not file quarterly federal payroll returns.
Is the nanny tax the same as household employee payroll tax?
Yes. Nanny tax is the informal name for the same obligation. The IRS does not use the phrase, but it describes the same obligation, and it covers far more than nannies.
The rules apply the same way to a housekeeper, a senior caregiver, a private cook, a regular gardener, and a part time babysitter. If you control the work, the nanny tax rules apply regardless of the job title.
Who counts as a household employee?
The test is control. If you set the schedule, direct the work, and provide the tools, the worker is your employee. If they set their own hours, bring their own equipment, and serve other clients, they are usually an independent contractor.
A plumber or electrician who repairs something in your home is a contractor. A nanny, a housekeeper, a senior caregiver, and many regular gardeners are household employees. A written agreement calling someone a contractor does not change this. Neither does the number of hours worked or the amount paid.
Some workers never count toward the nanny tax threshold, no matter how much you pay them.
- Your spouse
- Your child under age 21
- Your parent, with narrow exceptions involving childcare
- Any worker under age 18, unless household work is their main occupation
- Workers supplied by an agency that controls how the work is done
Household employee payroll tax rates and thresholds for 2026
| Item | 2026 figure |
|---|---|
| Nanny tax threshold for Social Security and Medicare | $3,000 in cash wages to any one employee |
| 2025 threshold, for comparison | $2,800 |
| Combined FICA rate | 15.3%, split 7.65% employer and 7.65% employee |
| Social Security wage base | $184,500, up from $176,100 |
| Medicare wage cap | None |
| Additional Medicare Tax | 0.9% on wages above $200,000, employee only |
| FUTA trigger | $1,000 in total household wages in any calendar quarter of 2025 or 2026 |
| FUTA rate | 6% on the first $7,000 per employee, usually 0.6% after the state credit |
The nanny tax threshold is measured per employee, per year. Two babysitters paid $2,000 each trigger nothing. One nanny paid $3,000 triggers Social Security and Medicare on the full $3,000, not on the amount above it. The FUTA test works differently. It looks at total wages paid to all household employees in a single quarter, so families with more than one worker can cross it without crossing the FICA threshold. The Social Security Administration resets the coverage threshold each October using the national average wage index, so confirm the figure before each new year.
How much does household employee payroll tax cost?
Your share as the employer is 7.65% of cash wages, plus a small federal unemployment amount. Here is what that looks like at three common wage levels for 2026.
| Annual cash wages | Employer FICA at 7.65% | FUTA at 0.6% | Your federal cost |
|---|---|---|---|
| $6,000 part time sitter | $459 | $42 | About $501 |
| $20,000 part time nanny | $1,530 | $42 | About $1,572 |
| $45,000 full time nanny | $3,442 | $42 | About $3,484 |
State unemployment tax sits on top of these figures and varies widely by state and by your experience rating. Budget for it separately.
Your employee also pays 7.65%, which you withhold from their wages. You may choose to cover their share instead, but if you do, the amount you pay counts as additional taxable wages to them.
What changed for household employers in 2026?
The One Big Beautiful Bill Act created a federal income tax deduction for qualified overtime compensation, and the reporting rules took effect this year. Beginning with tax year 2026, employers must report qualified overtime compensation on Form W-2 in Box 12 using Code TT. The IRS gave employers penalty relief for 2025. That relief has ended. The agency issued updated guidance on August 6, 2026 in Fact Sheet FS-2026-13 confirming the requirement.
This reaches household employers because domestic workers who do not live in your home are non exempt under the Fair Labor Standards Act. If you paid overtime, you paid qualified overtime compensation.
Four points to get right.
- Code TT reports the premium only. If your nanny earns $25 an hour and $37.50 for overtime, the qualified amount is the extra $12.50 per hour, not the full $37.50.
- It goes in Box 12, not Box 14. Box 14 was the informal location some employers used for 2025.
- It does not change what you owe. Overtime wages remain subject to Social Security, Medicare, federal unemployment tax, and income tax withholding. Code TT is informational.
- Errors require a Form W-2c. Your employee generally cannot claim a larger deduction than the amount you reported, so an understatement costs them money.
The deduction belongs to your employee. It is capped at $12,500, or $25,000 on a joint return, and phases out above $150,000 of modified adjusted gross income for individuals and $300,000 for joint filers. It runs through 2028.
How to pay household employee payroll tax, step by step
- Get a Federal Employer Identification Number. Apply on Form SS-4. Use this instead of your Social Security number on employment forms. If you already have an EIN from a sole proprietorship, use that one.
- Register with your state. You will need a state account for unemployment insurance and, in most states, income tax withholding.
- Complete Form I-9. You and the employee each fill out a section, and you examine the documents that establish identity and work authorization.
- Withhold Social Security and Medicare once you cross the $3,000 nanny tax threshold, or pay the employee’s share from your own funds.
- Handle income tax withholding only by agreement. You are not required to withhold federal income tax from a household employee. If you both agree to it, have the worker complete a Form W-4.
- File and pay state employment taxes on schedule. Most states require quarterly returns. Some require monthly ones.
- Issue Form W-2 and file Form W-3. For 2026 wages, the deadline is February 1, 2027, because January 31 falls on a Sunday.
- File Schedule H with your Form 1040. This is where you report and pay household employment taxes for the year.
When do you pay household employment taxes?
Household employers do not make separate quarterly payroll deposits the way businesses do. You settle up once, on Schedule H, with your personal return.
That creates a trap. The IRS still expects the money throughout the year. If you wait until April and pay it all at once, you can owe an underpayment penalty on top of the tax. Two ways to avoid it.
- Increase the withholding at your own job by filing a new Form W-4 with your employer
- Make quarterly estimated payments using Form 1040-ES
Run the numbers in January rather than at filing time. The cost table above gives you the figure to plan around.
Rules that catch household employers off guard
- Overtime is required. Domestic employees are non exempt under the FLSA and earn time and a half after 40 hours in a week. Live in employees are exempt from the federal overtime requirement, though some states apply their own rules.
- Salary does not work. Treating a non exempt worker as salaried does not remove the overtime obligation. Pay hourly and track hours.
- Keep the household payroll separate. If you own a business, you may want to add your housekeeper to the company payroll. Household wages are personal expenses and are not deductible business costs. Pay them from personal funds and keep the records apart.
- A 1099 is the wrong form. Issuing Form 1099-NEC to a nanny misclassifies the worker. It shifts your share of the payroll tax onto them, and the IRS treats it as an employment tax issue rather than a paperwork slip.
- State thresholds can be lower. Federal FUTA starts at $1,000 a quarter, but California starts at $750, and New York and the District of Columbia start at $500.
What happens if you pay a household employee in cash?
Paying under the table looks simpler and often has the employee’s agreement. The exposure shows up later, usually at the worst moment. A worker who is injured on your property, or who is let go on bad terms, has a direct route to the state labor board or the unemployment office. Filing for benefits reveals that no wages were reported. From there the state and the IRS can pursue back taxes, interest, and penalties, and the amounts compound across every year you paid in cash.
There is an upside to handling household employment taxes correctly. Wages paid to a caregiver can support a Dependent Care FSA claim or the child and dependent care credit, and neither is available without documented wages. The Dependent Care FSA limit rose to $7,500 for joint filers, though individual employer plans decide whether to adopt the higher cap.
Situations that need a closer look
Publication 926 does not cover every arrangement in detail, and neither does this overview. Get advice before you file if any of these apply.
- You hired the worker through an agency, which may make the agency the employer
- You want to gross up wages to cover the employee’s share of Social Security and Medicare
- You provide non cash wages such as housing, meals, or a vehicle
- Your employee lives in your home
- Your employee works in more than one household
- You have not reported wages from prior years
Household payroll help from Nexus United Inc.
Nexus United Inc. manages household employee payroll tax for families who employ nannies, housekeepers, and caregivers. Our team registers you with the IRS and your state, runs the household payroll, tracks overtime so the new Code TT reporting is right, prepares the year end W-2, and files Schedule H with your return. If you have been paying cash and want to correct it, that conversation is worth having before a claim gets filed rather than after.
Frequently asked questions
What is the nanny tax threshold for 2026?
Pay any one household employee $3,000 or more in cash wages during 2026 and you owe Social Security and Medicare taxes on all of those wages. The 2025 threshold was $2,800. A separate $1,000 quarterly test triggers federal unemployment tax.
How much is the nanny tax?
Your employer share is 7.65% of cash wages plus about $42 in federal unemployment tax, so a $45,000 nanny costs roughly $3,484 in federal payroll tax. State unemployment tax is extra and varies by state.
Can I give my nanny a 1099 instead of a W-2?
No. A nanny is your employee because you control the work, so Form W-2 is the correct form. Issuing a 1099 shifts your share of the payroll tax onto the worker and creates an employment tax problem for you.
Do I have to withhold federal income tax from a household employee?
No. Income tax withholding is optional for household employees. You only do it if the worker asks and you agree, and the worker should complete a Form W-4 so you withhold the right amount.
What is Code TT on the 2026 W-2?
Code TT in Box 12 reports qualified overtime compensation, meaning the premium half of time and a half pay. It became mandatory for tax year 2026. It is informational and does not reduce the household employment taxes you owe.
Does the nanny tax apply to a part time babysitter?
It depends on the total, not the schedule. A part time sitter paid $60 a week crosses the $3,000 threshold before the year ends. Workers under 18 are excluded unless household work is their main occupation.
What happens if I have not been reporting household wages?
The exposure grows each year, and it usually surfaces through an unemployment claim or a workplace injury. Correcting it voluntarily gives you options for prior years that disappear once an agency opens an inquiry.
