What is the nanny tax and when do I owe it?
Reviewed September 2026 against the same data that powers Kindred's free calculators.
"Nanny tax" is shorthand for the employment taxes you owe once you pay a household worker $2,700 or more in a calendar year: Social Security and Medicare (7.65% from you, 7.65% withheld from your nanny), plus federal unemployment tax on the first $7,000 of wages, plus your state's unemployment tax. You file it with your own tax return on Schedule H and give your nanny a W-2.
What it is not
It is not optional, and it is not avoided by calling your nanny a contractor. The IRS classifies household workers as employees because you control the schedule and the work. Paying cash under the table exposes you to back taxes and penalties, and costs your nanny unemployment coverage, Social Security credits, and a verifiable income history for apartments and loans.
What paying it buys
- You can use a Dependent Care FSA or the child care tax credit, which usually claws back a large chunk of the cost
- Your nanny gets unemployment insurance, Social Security credits, and provable income
- You get an employment record that protects you if the relationship ever ends badly
Related
This page is a plain-English summary for planning, not tax or legal advice. Rates and thresholds change; confirm current figures with the IRS, your state agency, or a payroll professional before filing.