Understanding Nanny Taxes and Payroll: Navigating the Legal and Financial Aspects of Hiring a Nanny

Hiring a nanny is a big responsibility — and that includes handling taxes and payroll correctly. Many families feel overwhelmed by terms like “FICA” and “Schedule H,” but it doesn’t have to be complicated. This guide breaks it down into simple steps so you can stay compliant and keep your household running smoothly.

1. What Are Nanny Taxes?

“Nanny taxes” are the federal and state taxes you pay when you employ a nanny or household worker. They include:

• Social Security & Medicare – contributions for both you and your nanny.

• Federal Unemployment (FUTA) – supports unemployment benefits if your nanny is temporarily out of work.

• State Unemployment (SUI) – varies by state.

2. When Nanny Taxes Apply

You need to pay nanny taxes if:

• Your nanny earns more than $2,600/year (2026 IRS threshold).

• Your nanny works full-time or receives benefits like paid time off, health coverage, or bonuses.

3. Running Payroll for Your Nanny

Handling payroll may feel intimidating, but it’s manageable once you know the steps. You have two main options:

1. Use a payroll service – this is the easiest option for families. The service automatically calculates taxes, withholds the correct amounts, files required forms, and provides W‑2s at the end of the year.

2. Do it yourself – possible if you prefer managing it manually. Here’s what that involves:

   • Track hours and pay: Keep a weekly or monthly record of how much you pay your nanny.

   • Withhold and pay Social Security and Medicare: You are responsible for both your share (employer portion) and your nanny’s share (employee portion).

   • File payroll taxes: Submit quarterly and annual forms to the IRS and your state (if applicable).

   • Provide a W‑2 at the end of the year: Your nanny will use this to file their taxes. You do not give it when they start; it’s given after the calendar year ends, typically by January 31.

Tip for Busy Families: Using a payroll service saves time and ensures everything is accurate, especially if this is your first time hiring a nanny.

4. Employment Agreements

A written agreement is essential. Include:

• Pay rate and schedule

• Duties and responsibilities

• Paid time off and holidays

• Start date and trial period (if applicable)

This ensures both your family and the nanny know what to expect and avoids misunderstandings.

5. Quick Tips for Busy Families

• Consider a payroll service — it saves time and stress.

• Keep all documentation in one folder (contracts, pay stubs, tax forms).

• Schedule a brief review each quarter to make sure everything is on track.

To simplify nanny taxes and payroll, Super Sitters partners with GTM Payroll, a household employment specialist that handles tax withholdings, filings, and compliance—so you can focus on your family.