Employing household help—whether a nanny, housekeeper or gardener—can make your life easier, but it also comes with tax responsibilities, often referred to as the “nanny tax.” If your worker qualifies as an employee rather than an independent contractor, you could be responsible for federal income tax, Social Security, Medicare (FICA), federal unemployment (FUTA) and potentially state taxes.
Withholding federal income tax isn’t mandatory, but you can choose to do so if the employee requests by having them complete a Form W-4. However, you may be required to withhold Social Security and Medicare (FICA) taxes and pay federal unemployment (FUTA) tax.
2024 and 2025 thresholds
In 2024, household workers earning $2,700 or more in cash wages (excluding food and lodging) trigger FICA tax obligations. In 2025, that threshold will increase to $2,800. FICA applies to the full amount earned if wages meet or exceed these limits.
If a nanny is under 18 and childcare isn’t their primary occupation, FICA taxes don’t apply. So, there is no FICA tax liability for your part-time student babysitter.
As a household employer, you and your employee share FICA tax obligations. You’re responsible for withholding the worker’s share and paying a matching amount. FICA includes:
- Social Security tax. 6.2% for the employer and for the worker or 12.4% total.
- Medicare tax. 1.45% each or 2.9% total.
You can also choose to cover your worker’s share of Social Security and Medicare taxes. While these payments aren’t treated as additional cash wages for Social Security and Medicare purposes, they are considered taxable income for federal tax purposes. Be sure to include them as wages on the worker’s W-2 form.
Employers must also pay FUTA tax if they pay $1,000 or more in cash wages, excluding food and lodging, during a calendar quarter. This tax applies to the first $7,000 of wages paid and is solely the employer’s responsibility.
Making payments
You can cover household worker taxes by adjusting your quarterly estimated tax payments or wage withholdings instead of making an annual lump-sum payment.
As an employer of a household worker, you don’t have to file employment tax returns, even if you’re required to withhold or pay tax. Instead, report employment taxes on Schedule H with your personal tax return, using your Employer Identification Number (EIN). Note that this is not the same as your Social Security number. If you need an EIN, you should file Form SS-4 to get one.
However, if you own a business as a sole proprietor, you should include household worker taxes on your business’s FUTA (Form 940) and FICA (Form 941) filings, using your business EIN.
Keep detailed records
Store tax records for at least four years from the later of the return due date or payment date. These should include the worker’s name, address, Social Security number, employment dates, wages, taxes withheld, and copies of filed forms.
Reach out to your Smolin advisor if you have questions about how to comply with these requirements.