You’ve invested so much to find just the right nanny to care for your children, the last thing you want to worry about is payroll taxes! Calculating, filing and paying your nanny’s payroll can be intimidating and confusing. Don’t worry—we’ll walk through the ABCs of nanny taxes together. We promise this won’t take weeks and you shouldn’t lose any sleep!

Who has to pay the nanny tax?

Not everybody has to pay the nanny tax, so let’ start here. You’re likely responsible for the nanny tax if you pay your nanny $2,100 or more for the year in 2018 or $1,000 or more per quarter. These amounts can adjust yearly, so you’ll want to check with the IRS’s Publication 926 for updates.

Also, just because you pay one of those amounts it doesn’t mean you have to automatically pay. There are a few more exceptions. According to the IRS, you’re exempt from paying the nanny tax and the Federal Unemployment Tax Act taxes (FUTA) if:

  • your nanny is your spouse,
  • your nanny is your child who’s under the age 21 or
  • your nanny is any employee under the age of 18 at any time in 2018. (This is only an exemption for the nanny payroll tax – not FUTA.)

If you’re one who has to pay the nanny tax, let’s take a closer look to see what it’s all about.

What is the nanny tax?

The nanny tax, or the household employment tax, is a combination of Social Security and Medicare taxes. These are taxes that must be withheld, paid and filed when paying your nanny. Before we get started though, the first step is to ensure your nanny is legally eligible to work. Ask your nanny to complete Form I-9, found on the U.S. Citizenship and Immigration Services website. You don’t have to send it in, however keep it for your records for 3 years after your nanny no longer works for you.

OK, let’s break down these taxes.

First, you need to withhold Social Security and Medicare taxes from each paycheck. You’re responsible for withholding 6.2 percent for Social Security and 1.45 percent for Medicare each time you pay your nanny. Next, you’ll need to match these amounts for your share. Yes, that means matching the funds for both of these taxes from your own wallet. Tip: Some people open up a separate bank account just for these taxes to help track the amounts and ensure there are funds available.

Second, as the employer you owe FUTA taxes. This is an employer tax only, so that means you do not withhold it from your nanny’s wages. The FUTA tax rate is 0.6 percent and is capped on the first $7,000 of wages. If you pay your nanny $250 a week or $13,000 per year, you’ll need to pay FUTA taxes of $42 ($7,000 x .06%) for the year. Are there any exceptions? Yes, if your nanny is your spouse, your child under the age of 21 or your parent.

How do I pay and file the nanny tax?

Once you have your Social Security, Medicare and FUTA taxes squared away it’s time to pay and file. According to the IRS, you’ll need to pay estimated taxes using IRS Form 1040-ES, Estimated Tax for Individuals. Use its payment vouchers to make your payment by check or money order. An Electronic Funds Withdrawal (EFW) or payment by credit card may also be available.

Your estimated payments for 2018 are due April 17, June 15, and September 17, 2018, and January 15, 2019.

To pay FUTA, complete and file Schedule H with your personal federal income tax return.

Why should I pay the nanny tax?

Calculating, paying and filing your nanny taxes can be an intimidating task. However, it’s the law! And it’s one you’ll want to follow. Failing to pay can be costly and result in fines up to $25,000. Ouch! That’s a tough hit on the family budget.

By paying the nanny tax you’ll protect your family’s finances and also yourself as an employer.

How does my nanny benefit?

The biggest advantage is that your nanny will qualify for unemployment benefits when services are no longer needed. Also, an employment history is established and your nanny would be entitled to Social Security and Medicare benefits.


GTM Payroll Services simplifies nanny taxes and payroll. Taxes are automatically calculated, withheld and remitted on time, every time. 100% guaranteed. Plus enjoy free direct deposit to make pay day as easy as can be.

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Disclaimer: Sittercity does not advise on any personal income tax requirements or issues. Use of any information from this blog or any other website referred to is for general information only and does not represent personal tax advice either expressed or implied. Many variables can affect your tax issues and tax laws change frequently. You are encouraged to seek professional tax advice for personal income tax questions and assistance. Some links to professional tax agencies are also provided for your convenience.