Hiring a nanny usually makes a family a household employer, not a customer paying an independent business. That distinction affects taxes, payroll records, wage rules, and insurance. Learning how to pay a nanny legally helps a family set a realistic budget, avoid costly penalties, and give the nanny clear, documented pay. Federal rules are only part of the picture: state and local requirements may add registrations, paid-leave benefits, or other obligations.
Determine Whether the Nanny Is an Employee
Most nannies are household employees under federal tax and labor rules. The key issue is control: if the family directs what work is done and how, when, or where it is performed, the nanny is generally an employee. A nanny does not become an independent contractor simply because the family issues a Form 1099, the nanny prefers that arrangement, or a contract uses the words “self-employed.”
A nanny hired through an agency may still be the family’s employee. The agency’s role and the actual working arrangement determine who is responsible for payroll, taxes, and employment rules. Families should ask the agency in writing who reports wages, withholds taxes, issues the W-2, and handles required insurance.
Misclassifying an employee can lead to unpaid employment taxes, interest, penalties, and wage claims. The IRS provides guidance on household workers in Publication 926, Household Employer’s Tax Guide. For difficult cases, a tax professional or employment attorney can assess the specific arrangement.
Know Which Taxes Apply
Household employment taxes depend on how much the family pays, when it pays, and whether the worker is the family’s employee. Thresholds and forms can change, so employers should check current IRS guidance for the tax year involved.
| Requirement | General federal rule | What the employer should do |
|---|---|---|
| Social Security and Medicare (FICA) | For 2026, these taxes generally apply when cash wages to one household employee reach $2,800 or more in the calendar year. The combined rate is 15.3%: 12.4% Social Security and 2.9% Medicare, generally split equally between employer and employee. | Withhold the employee’s share and pay the employer’s share, subject to applicable wage limits and exceptions. Check the IRS threshold for the relevant year. |
| Federal unemployment tax (FUTA) | Generally applies if the employer pays household employees at least $1,000 in cash wages in any calendar quarter in the current or preceding year. The tax is generally paid by the employer, not withheld from the nanny. | Check current IRS rules, including any credit for state unemployment contributions. |
| Federal income tax withholding | Usually not required for household employees unless the nanny asks and the employer agrees to withhold. | If withholding is agreed upon, collect the necessary tax forms and remit the amounts properly. |
| State and local taxes | Rules vary. Some jurisdictions require withholding, unemployment contributions, disability insurance, paid-leave contributions, or other payroll taxes. | Check the tax and labor agencies where the nanny works. |
The IRS generally treats a worker as a household employee when the employer pays the worker directly and controls the work. Certain exceptions apply, including some services performed by a spouse, a parent, or a child under age 21. The details matter; an exception to Social Security and Medicare taxes does not necessarily eliminate every other tax or labor obligation.
For Social Security and Medicare, the employer is responsible for both the employer share and the employee share. The employee share is normally withheld from wages. If the family chooses to pay the employee’s share instead of withholding it, that payment can count as additional taxable wages and may increase the tax calculation.
Set Up Payroll Before the First Paycheck
A household employer does not necessarily need a commercial payroll service, but the family needs a reliable process. Before work begins, confirm the agreed wage, pay schedule, duties, hours, overtime terms, and benefits in writing. The agreement should specify whether the wage is hourly or salary-based and how additional hours will be paid. A salary does not automatically remove overtime rights.
- Get an Employer Identification Number. An EIN identifies the employer on federal tax filings. It is different from the employer’s Social Security number. Applications are available through the IRS.
- Complete hiring paperwork. The nanny completes Form I-9 to document work authorization. The employer completes and retains the employer section. The nanny should also provide Form W-4 if federal income tax withholding is being arranged. State forms may also be required.
- Register with state agencies. Depending on the state, registration may be needed for unemployment insurance, withholding, disability insurance, or paid family and medical leave.
- Choose a payroll schedule and system. Use payroll software, a household payroll provider, or carefully maintained records. A system should calculate gross pay, deductions, employer taxes, and net pay and preserve payroll records.
- Pay through traceable methods. Direct deposit, check, or another documented method creates a record of payment. Cash payments still count as wages and do not remove tax or wage obligations.
Families should agree on a gross wage rather than making assumptions based on take-home pay. If a nanny is promised a particular net amount, the employer may need to “gross up” wages so the worker receives that amount after withholding. The calculation can affect taxable wages and should be handled carefully.
Follow Minimum-Wage and Overtime Rules
The Fair Labor Standards Act (FLSA) generally covers domestic service employees, including nannies. Covered workers must receive at least the applicable minimum wage. When federal, state, or local minimum-wage rules differ, the employer generally must follow the rule that provides the greater protection.
Many nannies are entitled to overtime pay at no less than one and one-half times their regular rate for hours over 40 in a workweek. The rules depend on the job and living arrangement. A live-in domestic worker is generally exempt from federal overtime requirements, but is still entitled to minimum wage under federal law. State rules may provide overtime rights or other protections that go further.
“Live-in” has a specific meaning; a nanny who works long shifts or stays overnight occasionally is not automatically a live-in employee. For certain live-in domestic workers, employers must keep records of hours worked and wages paid even when federal overtime does not apply. Families should check the U.S. Department of Labor’s guidance and their state labor agency’s rules before setting a schedule.
Track all time worked, including early starts, late finishes, and work performed after a scheduled shift. Employers generally cannot average hours across multiple workweeks to avoid overtime. On-call time, sleep periods, meal breaks, and travel between work locations can have specific treatment under wage laws. A clear timekeeping policy helps prevent disagreements.
Understand Pay Stubs, Records, and Tax Forms
Federal law does not require every employer to provide a pay stub, but many states do. A pay statement is useful in any case because it shows the pay period, hours, gross wages, deductions, and net pay. Employers should keep payroll records, time sheets, tax filings, and the written employment agreement for the periods required by applicable law.
At year-end, a household employer generally must provide Form W-2 to an employee whose wages are subject to Social Security and Medicare taxes, and file Copy A with the Social Security Administration. The usual deadline is January 31 following the year wages were paid, with adjustments when the deadline falls on a weekend or holiday. The nanny uses the W-2 to report wages on an individual tax return.
Household employers generally report household employment taxes on Schedule H, filed with the employer’s federal income tax return. If the employer is not required to file an individual income tax return, IRS instructions explain how to file Schedule H separately. State forms and deadlines are separate and may not match the federal schedule.
Household employees generally do not receive Form 1099-NEC for wages. That form is typically used for qualifying payments to nonemployees, not to turn an employee into a contractor. The IRS explains filing requirements in Schedule H instructions and Publication 926.
Check State and Local Employer Requirements
Federal compliance does not guarantee full compliance. State and local laws may require employers to provide wage notices, pay stubs, meal and rest breaks, paid sick leave, paid family or medical leave contributions, unemployment insurance, or workers’ compensation coverage. Some rules depend on the nanny’s hours, the number of employees, or the location where work is performed.
Workers’ compensation requirements vary significantly. Some states require coverage for household employees, while others set different thresholds or exemptions. Homeowners insurance should not be assumed to cover every work-related injury or satisfy a workers’ compensation law. The state workers’ compensation agency or an insurance professional can explain the applicable requirement.
Families should check the official labor, tax, unemployment, and workers’ compensation agencies in the state where the nanny works. If the nanny works in more than one state, or works in a city with its own labor rules, additional requirements may apply. A payroll provider can help with filings, but the household employer remains responsible for confirming that obligations are met.
Budget for the Full Cost of Employing a Nanny
The nanny’s hourly wage is only part of the employer’s cost. A household budget should include employer-side payroll taxes, paid time off, potential overtime, payroll service fees, insurance, and any state-required contributions. Benefits such as health insurance or reimbursement for job-related expenses should be documented and reviewed for tax treatment.
A practical budget starts with expected weekly hours and the agreed gross wage. The employer can then estimate overtime, employer FICA, unemployment taxes, state contributions, and paid leave. Because tax thresholds and state rules vary, a payroll calculator or qualified payroll professional can produce a more dependable estimate than a flat percentage.
Common Mistakes to Avoid
- Paying under the table: Cash wages remain wages and may still trigger tax, recordkeeping, and wage-law duties.
- Calling the nanny a contractor without a valid basis: Classification depends on the actual working relationship, not the label or payment method.
- Ignoring overtime: A weekly salary or informal agreement does not automatically waive overtime rights.
- Skipping state registration: State payroll taxes and employment protections may apply even when federal withholding is not required.
- Waiting until tax season: Late payroll setup can make it harder to calculate withholding, maintain records, and meet filing deadlines.
- Assuming an agency handles everything: Families should confirm in writing which party is the employer and who handles each tax, form, and insurance obligation.
For specific guidance, employers can consult IRS Publication 926, the U.S. Department of Labor’s domestic service guidance, and the relevant state agencies. Tax rules and wage thresholds can change, so current agency instructions should be checked before each filing and at the start of a new tax year.