When You Owe the Nanny Tax in 2026 and How to Pay It

You owe the nanny tax for 2026 if you pay any one household employee $3,000 or more in cash wages during the year, or pay all your household employees a combined $1,000 or more in any calendar quarter (IRS Pub 926). The first test triggers Social Security and Medicare tax (7.65% from you and 7.65% from the nanny); the second triggers federal unemployment tax (FUTA). You report both on Schedule H with your 2026 Form 1040, due April 15, 2027, and most working parents should pay during the year to avoid an underpayment penalty.

"Nanny tax" is shorthand for household employment taxes. The same rules cover a babysitter, housekeeper, or yard worker you hire directly (Pub 926).

Do I owe the nanny tax in 2026?

You owe it if you cross either federal threshold, and the two are measured differently.

Sources: Pub 926 (2026), IRS Tax Topic 756.

The $3,000 threshold is up from $2,800 for 2025 (Schedule H instructions). Once you reach it, the tax applies to every dollar you paid that employee in 2026, not just the amount above $3,000. Wages paid by check or money order count as cash; meals and lodging don't count toward the threshold and aren't subject to Social Security or Medicare tax (Pub 926).

Is my nanny an employee or a contractor?

If you control what work is done and how it's done, your nanny is your household employee, full-time or part-time (Pub 926). Setting their hours and how they care for your kids is that kind of control. Paying on a 1099 doesn't change that; see how to tell an employee from an independent contractor.

The worker is not your employee in two situations:

• An agency provides the worker and controls what work is done and how. An agency that only makes the placement, leaving you to pay and direct the nanny, doesn't count.
• The worker is genuinely self-employed, meaning only they control how the job is done. The IRS example is a lawn-care business that serves the public, hires its own helpers, and brings its own tools.

Who doesn't count toward the nanny tax?

Some family members and young workers are exempt, but the FUTA list is shorter, which catches parents of teenage babysitters.

Source: Pub 926 (2026).

For a student, household work is never their principal occupation, so a 16-year-old sitter's wages are exempt from Social Security and Medicare. Those same wages still count toward the $1,000-per-quarter FUTA test.

Wages you pay your parent are taxable for Social Security and Medicare only if both of these are true (Pub 926):

1. Your parent cares for your child who is under 18, or who has a condition that requires personal care for at least 4 continuous weeks in the quarter.
2. You are divorced and not remarried, widowed, or living with a spouse whose physical or mental condition prevents them from caring for the child for at least 4 continuous weeks in the quarter.

How much does the nanny tax cost?

For 2026, you and your nanny each owe 7.65% of cash wages, and you alone owe FUTA on the first $7,000 per employee (Pub 926).

The FUTA credit of up to 5.4% applies when you pay your state unemployment contributions on time, which is how most employers land at 0.6%, or $42 per employee for the year (Pub 926). California is the exception among the states: its credit was cut 1.2% for 2025 (Schedule H instructions). For 2026, the Department of Labor's potential-2026 list, updated September 11, 2026, projects 1.5% (up to 5.3% if the estimated "BCR add-on" is not waived, as it was for 2025). The projection becomes final only after the November 10, 2026 repayment deadline, in time for the 2026 Schedule H you file in 2027, so check the certified rate on the DOL credit-reduction page before you file.

Worked example: a nanny paid $700 a week

Federal math for a live-out nanny, not a relative, paid $700 a week for all 52 weeks of 2026, using Pub 926 rates. You withhold their share of Social Security and Medicare; no income tax withholding was agreed.

Each paycheck

For the year

• Cash wages: $700 × 52 = $36,400. The nanny passes the $3,000 threshold in week 5, so all $36,400 is taxable.
• Nanny's share, withheld from their pay: $36,400 × 7.65% = $2,784.60
• Your matching share: $2,784.60
• FUTA: $7,000 × 0.6% = $42.00 (outside a credit reduction state)
• Total on Schedule H: $5,611.20

Your own federal cost on top of wages is $2,784.60 + $42.00 = $2,826.60, about 7.8% of pay; the rest is the nanny's withheld share.

Should I pay my nanny's share myself?

You can, which lets your nanny take home a round number. The amount you cover counts as extra wages for income tax purposes, though not for Social Security, Medicare, or FUTA (Pub 926).

In the example above, covering the nanny's $2,784.60 means they take home the full $700 a week and your federal cost rises to $5,611.20. Their W-2 then shows $39,184.60 in box 1 (income tax wages) and $36,400 in boxes 3 and 5 (Social Security and Medicare wages).

Do I have to withhold income tax from my nanny?

No. You withhold federal income tax only if your nanny asks, you agree, and they give you a Form W-4 (Pub 926; Schedule H instructions). Social Security and Medicare tax, by contrast, is owed once you reach $3,000. If you do agree to withhold income tax, you must file Schedule H even if you never cross either threshold (Tax Topic 756).

How do I pay the nanny tax, step by step?

Get an EIN, withhold each payday, pay the tax during the year, then file a W-2 in January and Schedule H in April.

1. Get an EIN. Your Social Security number can't stand in for it on Schedule H or the W-2 (Schedule H instructions). Apply online for free. More on when you need an EIN.
2. Complete Form I-9 with your nanny if they work for you on a regular basis (Pub 926; USCIS Form I-9).
3. Register with your state unemployment agency, and check whether other state taxes or workers' compensation apply (Pub 926).
4. Withhold the nanny's share each payday once you expect to reach $3,000, and keep a record of each payment. Record their name and SSN exactly as they appear on their Social Security card (Pub 926).
5. Pay the taxes during the year, through extra withholding at your own job or estimated payments (next section).
6. Give your nanny a W-2 by February 1, 2027, and file Copy A with Form W-3 at the Social Security Administration by the same date, since January 31, 2027 is a Sunday (Pub 926). You can file electronically through SSA Business Services Online. See W-2 deadlines and how to file.
7. File Schedule H with your 2026 Form 1040 by April 15, 2027 (Pub 926). If you aren't otherwise required to file a return, you file Schedule H on its own, with payment, by the same date (Schedule H instructions). Schedule H, explained covers the form itself.
8. Keep your records for at least 4 years after the return's due date or the date you paid the tax, whichever is later (Pub 926).

If you own a business or farm run for profit, you have a second option: report the nanny's Social Security, Medicare, and any income tax withholding on your business's Form 941 or 944, and FUTA on Form 940, instead of Schedule H (Pub 926).

Can I wait until April to pay the nanny tax?

You file Schedule H in April, but if income tax is withheld from your own paycheck, paying the nanny tax then can trigger an underpayment penalty. Form 1040-ES says to include household employment taxes in your estimate if you have federal income tax withheld from wages, pensions, or other income, or would owe estimated tax anyway, which covers most parents with a job.

There's no quarterly nanny tax return; you pay as you go in one of two ways (Tax Topic 756):

• Raise the withholding at your own job. Use the IRS Tax Withholding Estimator, then give your employer a new W-4.
• Make estimated payments with Form 1040-ES. The 2026 due dates are April 15, June 15, and September 15, 2026, and January 15, 2027 (Form 1040-ES). Pay through IRS Direct Pay or EFTPS. More in quarterly estimated taxes.

You generally avoid the penalty by paying the smaller of 90% of your 2026 tax or 100% of your 2025 tax (110% if 2025 AGI topped $150,000), or by owing under $1,000 after withholding (Form 1040-ES).

What about state taxes for a nanny?

State rules are separate and often start sooner than the federal $1,000-a-quarter test, and some states add disability, paid leave, or workers' compensation requirements. Two examples:

California (EDD Household Employer's Guide, DE 8829):

• Register with EDD within 15 days of paying $750 or more in cash wages in a calendar quarter.
• At $750 in a quarter, withhold State Disability Insurance (SDI), 1.3% of all wages for 2026.
• At $1,000 in a quarter, you also pay unemployment insurance (3.4% for a new employer) and Employment Training Tax (0.1%), each on the first $7,000 of wages.
• State income tax withholding is optional unless you and your nanny agree to it.

For the $700-a-week nanny, that's $9.10 a week in SDI withheld from their pay, plus $238 in UI and $7 in ETT from you for the year. If California's projected credit reduction is certified for 2026, your FUTA will be more than $42; see above.

New York:

• Unemployment insurance applies once you pay $500 or more in cash wages to household workers in a calendar quarter (NY Tax Dept). For 2026 the wage base is $17,600 (NYS-45 instructions) and the new-employer rate is 4.1% (NYS DOL), so for the $700-a-week nanny you owe $17,600 × 4.1% = $721.60 for the year.
• Disability Benefits and Paid Family Leave coverage is required for a domestic worker employed 20 or more hours a week who works 30 or more days in a calendar year for you (NY Workers' Compensation Board).
• Workers' compensation is required at 40 or more hours a week (NY WCB).

Can I still use a dependent care FSA or the child care credit?

Yes. For the credit, your nanny's wages and your share of federal and state employment taxes all count as care expenses (Pub 926), for a child under 13 or a spouse or dependent who can't care for themselves. Both benefits changed for 2026 under P.L. 119-21:

• Dependent care FSA: the limit rose from $5,000 to $7,500 ($3,750 if married filing separately) (IRS Pub 15-B).
• Child and dependent care credit: the rate now starts at 50% and steps down as income rises, to a floor of 35% until AGI reaches $75,000 ($150,000 joint), then down to 20% (26 U.S.C. §21). Eligible expenses are still capped at $3,000 for one child and $6,000 for two or more.

The two interact. Every dollar you run through a dependent care FSA reduces the expenses you can claim for the credit (26 U.S.C. §21). With two kids, a full $7,500 FSA election takes the $6,000 credit limit to zero. For a married couple at $180,000 AGI, the credit rate is 27%, so the most the credit could be worth is $6,000 × 27% = $1,620. Compare that with what the FSA saves at your own tax rates; Publication 503 covers both, and a tax preparer can run the numbers.

What to do next

1. Total what you'll pay your nanny in 2026 against the $3,000 and $1,000-a-quarter tests.
2. Get an EIN and register with your state unemployment agency.
3. Withhold Social Security and Medicare each payday, or budget to cover your nanny's share.
4. Raise your W-4 withholding at work or make a Form 1040-ES payment by January 15, 2027.
5. Calendar February 1, 2027 (the W-2) and April 15, 2027 (Schedule H).
6. If you want the per-paycheck math done for you, CheckMate can pay your nanny by direct deposit, calculate the withholding each payday, and generate their W-2. You pay only when you run payroll, with no monthly fee. You still pay the taxes and file the returns yourself: the wage and withholding totals from the W-2 are what you carry onto Schedule H. No payroll service can file Schedule H for you, because it is an attachment to your own Form 1040.

The same rules apply to a housekeeper or home caregiver; see paying a housekeeper or caregiver on the books.

FAQ

We paid a sitter $2,500 this year. Do I file Schedule H? Not for Social Security and Medicare, since you're under $3,000. You still file if you paid $1,000 or more in any quarter to all household employees combined (FUTA) or withheld income tax (Tax Topic 756).

I withheld Social Security and Medicare, but the total stayed under $3,000. Now what? Pay the withheld amount back to your nanny. You can withhold before you're sure you'll reach $3,000, but if you don't, you should repay the employee (Pub 926).

I crossed $3,000 but never withheld anything. Am I still on the hook? Yes. An employer who was required to withhold and pay employment taxes and didn't is generally liable for the taxes that should have been withheld, and interest and penalties may apply (Pub 926).

Sources

1. IRS, Publication 926 (2026), Household Employer's Tax Guide
2. IRS, Tax Topic 756, Employment Taxes for Household Employees
3. IRS, Instructions for Schedule H (Form 1040) (2025)
4. IRS, Form 1040-ES (2026), Estimated Tax for Individuals
5. IRS, About Form 1040-ES
6. IRS, Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits
7. IRS, Publication 503, Child and Dependent Care Expenses
8. IRS, Get an Employer Identification Number
9. IRS, About Form W-4
10. IRS, Tax Withholding Estimator
11. IRS, Payments
12. 26 U.S.C. §21, Expenses for household and dependent care services
13. U.S. Department of Labor, FUTA Credit Reductions
14. U.S. Department of Labor, Contacts for State UI Tax Information and Assistance
15. USCIS, Form I-9, Employment Eligibility Verification
16. Social Security Administration, Business Services Online
17. California EDD, Household Employer's Guide (DE 8829, 2026)
18. New York State Department of Taxation and Finance, Hiring Household Help
19. New York State Department of Taxation and Finance, Instructions for Form NYS-45
20. New York State Department of Labor, Unemployment Insurance Rate Information
21. New York Workers' Compensation Board, Disability and Paid Family Leave Coverage Requirements
22. New York Workers' Compensation Board, Workers' Compensation Coverage Requirements