What You Need to Know About Paying Household Employees

When you hire someone to do work in your home, they may be considered a household employee, and you might have some tax withholding responsibility when you pay them. You may have heard of this tax referred to as the “nanny tax.” These taxes are actually employment taxes and include social security, Medicare, and sometimes federal and state unemployment taxes.

Who is considered a household employee?

The IRS defines a household employee as someone who performs domestic or support work in or around a private home, where the employer dictates what work is done and how it is done. In other words, you set the schedule, outline specific duties, provide necessary supplies, and direct the methods used to complete the tasks. Some common examples of household employees include:

• Nannies and babysitters
• Housekeepers
• Caretakers and home health aides
• Gardeners and yard workers
• Cooks and professional chefs

Who isn’t a household employee?

Workers who do work in or around your home and who have an independent business or work for a company or agency are not considered household employees. For example, you hire a painter to paint the exterior of your home. This person offers painting services to the general public, provides their own ladders and brushes, gives you a schedule of available times they can do the work, and decides how they will complete the task. This person is not a household employee. Rather, they are an independent contractor, and you have no tax withholding responsibility.

On the other hand, suppose you hire a home health aide to assist your elderly father. You hire this person directly, dictate the hours they will work, and provide specific instructions on how to care for your father. This person is a household employee.

The key to determining whether a worker is a household employee is to determine the extent to which you have the right to control what work the person does, when they do it, how they do it, and what tools and supplies they use. If you dictate those things, you have an employer-employee relationship. This is true even if you have an agreement, written or otherwise, that calls the relationship something else.

Wages paid to your spouse, children under age 21, or parents are generally exempt from social security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes (exceptions apply).

Thresholds for tax withholding

You are required to withhold payroll taxes for household employees only when you pay them above a certain threshold. For 2026, that threshold is $3,000 per employee. If you pay a household employee more than $3,000 during the year, you must withhold social security and Medicare taxes from their pay, remit these taxes to the IRS, and provide the employee with a Form W-2 at the end of the year. The threshold is measured per employee, per calendar year, and once you have paid someone $3,000 or more, you must pay employment taxes on all their wages paid during the year–not just the amount above $3,000.

Social security and Medicare tax payments have two parts: the employee’s share (the part you withhold) and the employer’s share (you match and pay out-of-pocket). When remitting social security and Medicare taxes to the IRS, you must pay both the employee’s and the employer’s share of these taxes. Further, if you pay all household employees $1,000 or more in any one quarter of the year, you will also need to pay FUTA taxes. These taxes are reported and paid to the IRS on Schedule H, filed with your Form 1040. You must have an employer identification number before you can file Schedule H or a W-2.

The good news is that when you hire independent contractors to do work in or around your home, you do not have to issue a 1099 form, regardless of the amount you pay. The 1099 forms are for reporting payments made in the course of a trade or business, not for personal household payments.

How much should I withhold?

Social security and Medicare tax withholding is mandatory if you expect the $3,000 threshold for a single worker to be met. The social security tax rate is 6.2 percent for the employee and 6.2 percent for the employer (12.4 percent total). The Medicare tax rate is 1.45 percent for the employee and 1.45 percent for the employer (2.9 percent total). Federal income tax withholding from a household employee’s wages is optional unless the employee requests it.

Keep any tax withheld in a separate account until you file your personal income tax return. As mentioned above, you should include Schedule H with your return to report household employee pay and tax withholding. At the time of filing, you pay both the withheld tax and the matching employer share of tax. If you file an extension for your tax return, you must pay the tax by the original due date of the return–IRS does not grant extensions of time to pay tax.

You can choose to pay the IRS the full 15.3 percent employer and employee portions of social security and Medicare tax out of your own pocket and not withhold any from your employee’s wages. This can become confusing and complicated, because while the amount you pay on behalf of the employee is counted as part of their taxable wages, it is not counted as wages for social security, Medicare, or FUTA tax purposes. Most household employers choose to withhold because it is simpler and less expensive.

Some household employees may prefer to make quarterly estimated tax payments on their own, but ultimately, you are responsible for the payroll taxes in the event they fail to make their quarterly payments.

Paying household employees and managing related tax withholding can be intimidating. It is complicated and full of traps for the unwary. At R&A, we help many taxpayers avoid the worry and stress associated with paying household employees by providing plenty of guidance and by preparing all necessary tax forms. We can assist you too! If you have questions about this topic or need assistance, please give us a call.