CalcStack — free, instant, no signup. The interactive calculator loads automatically.
Hire a nanny for $58+ a week and the IRS says you are an employer.
The nanny tax catches people off guard because there is no form to sign and no one explains the rule: pay any one household employee $3,000 or more in cash wages in 2026 (about $57.69 a week) and you owe Social Security and Medicare on those wages — 7.65% withheld from the employee plus 7.65% out of your own pocket. Pay $1,000 or more in any quarter and FUTA adds a flat $42 (0.6% of the first $7,000). You file once a year on Schedule H attached to your 1040, after getting an EIN and issuing a W-2. Skip it and you are exposed for back taxes plus penalties — and you likely misclassified an employee as a contractor. Done right, the wages also qualify for the $7,500 dependent-care FSA or the child care credit, which offsets a real chunk of the cost.
Parents negotiating a nanny offer use it when the hourly rate sounds settled but the real cost is not: past $58 a week the IRS treats the household as an employer, and the 7.65% employer share plus FUTA changes what "affordable" means — while the dependent-care FSA quietly pays a lot of it back.
Almost never legally. A nanny whose schedule, methods, and tools you control is a W-2 employee under IRS common-law rules; household work is the textbook example. Misclassification means back FICA (both shares), penalties, and interest — and states add their own unemployment and workers-comp exposure. If an agency or payroll service suggests 1099 for in-home care, that is a red flag.
Wages paid to your spouse, your child under 21, or your parent (with a narrow exception) are exempt from FICA, and wages paid to an employee under 18 whose principal occupation is being a student (a neighborhood babysitter in school) are exempt too. Everyone else — nanny, housekeeper, caregiver, gardener on your payroll — counts once they hit $3,000 in 2026.
You do not file quarterly: estimate the annual total and cover it during the year with extra withholding on your own W-4 or quarterly estimated payments, then settle on Schedule H with your 1040. Underpayment without that funding can trigger a penalty. The upside: nanny wages qualify for the dependent-care FSA (up to $7,500 per household in 2026, pre-tax) or the child and dependent care credit — worth $1,500 to $2,400+ for most families, which often covers the entire employer FICA share.