If you pay a nanny, housekeeper, senior caregiver, or other domestic worker in your home, IRS Publication 926 is the rulebook you follow. For 2026, you owe Social Security and Medicare taxes on any single household employee you pay $3,000 or more in cash wages during the year, and you owe federal unemployment tax if you pay $1,000 or more to all household employees combined in any calendar quarter.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide These taxes get reported once a year on Schedule H, attached to your personal Form 1040. Federal income tax withholding, by contrast, is optional. Get the setup right early and the annual filing is manageable; ignore the rules and the penalties can outrun the taxes themselves.
Is Your Worker Actually a Household Employee
The rules only apply to household employees, not independent contractors. A worker is your employee when you control both what work gets done and how it gets done. A nanny you hire to watch your children on your schedule, using routines you set, is an employee. A cleaning company that sends workers using its own equipment and methods is a contractor, and you owe no employment taxes on what you pay them.
Household employees perform domestic work in or around your private home: nannies, housekeepers, cooks, private nurses, yard workers you directly supervise, and home health aides are typical examples. A self-employed plumber or an independent landscaping company that offers services to the general public is not a household employee even when the work happens at your house.2Internal Revenue Service. About Publication 926, Household Employer’s Tax Guide
Family Members and Young Workers Who Are Exempt
Some workers are exempt from household employment taxes no matter how much you pay them:
- Wages paid to your spouse for household work are exempt from both FICA and FUTA.
- Wages paid to your child under 21 are exempt from FUTA, and FICA does not apply.
- Wages paid to your parent are exempt from FUTA, and FICA generally does not apply, with narrow exceptions when the parent cares for your child under certain circumstances.
- Wages paid to any employee under 18 are exempt from FICA unless household work is the employee’s principal occupation. A student’s principal occupation is their studies, so a high schooler or college student babysitting on weekends is typically exempt.3Internal Revenue Service. Topic no. 756, Employment Taxes for Household Employees
These exemptions apply worker by worker. If you employ a 17-year-old student and a full-time nanny, the exemption covers only the student.4Internal Revenue Service. Tax Situations When Taking Care of a Family Member
The Two Dollar Thresholds That Trigger Taxes
Two separate thresholds decide which federal taxes you owe. They operate independently, and you can cross one without crossing the other.
The FICA threshold is $3,000 for 2026. If you pay any single household employee that much or more in cash wages during the calendar year, Social Security and Medicare taxes apply to every dollar of that employee’s wages for the year, not just the amount above $3,000.5Social Security Administration. Determination of Employment Coverage Thresholds Cash wages include payment by check, money order, or electronic transfer. Non-cash items like meals or lodging do not count toward the threshold and are generally excluded from FICA.
The FUTA threshold is $1,000 in any calendar quarter of the current or preceding year, measured across all your household employees combined.6U.S. Department of Labor. Unemployment Insurance Tax Topic Cross it in a single quarter and you owe FUTA for the entire current year, and you remain liable the following year as well.
What You Actually Owe
Social Security and Medicare
Once the $3,000 mark is met for any employee, FICA applies at a combined 15.3% of gross cash wages, split evenly between you and the employee at 7.65% each.7Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates Each 7.65% share is 6.2% Social Security on wages up to the 2026 wage base of $184,500,8Social Security Administration. Contribution and Benefit Base plus 1.45% Medicare with no cap. You withhold the employee’s 7.65% from each paycheck, match it with your own 7.65%, and remit the total to the IRS.
You can choose to cover your employee’s 7.65% share yourself instead of withholding it. If you do, the amount you pay on their behalf is additional taxable income for federal income tax purposes, but it does not count as additional cash wages for Social Security and Medicare calculations, so it does not snowball.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
Federal Unemployment Tax
FUTA is paid entirely by you, never withheld from your employee. The tax applies to the first $7,000 of cash wages you pay each employee for the year.9Internal Revenue Service. Topic no. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return The gross rate is 6.0%, but employers who pay their state unemployment taxes on time get a credit of up to 5.4%, dropping the effective federal rate to 0.6%. At that net rate, the maximum federal FUTA cost is $42 per employee per year.10Internal Revenue Service. FUTA Credit Reduction
Two things can raise that $42 figure. First, if your state borrowed from the federal unemployment trust fund and hasn’t repaid, the credit is reduced and your effective FUTA rate goes up. The Department of Labor publishes the year’s credit reduction states each November.11U.S. Department of Labor. FUTA Credit Reductions Second, the 5.4% credit depends on paying your state unemployment taxes by the Form 940 due date, January 31 of the following year. Pay state taxes late and you lose part or all of the credit, pushing your federal FUTA bill up toward the full 6.0%.
Federal Income Tax Withholding Is Optional
This is where household employers differ sharply from business employers. You are not required to withhold federal income tax from your household employee’s wages. You should withhold only if your employee asks you to and you agree.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide If you both agree, the employee completes a Form W-4, and either of you can end the arrangement later with written notice. Many employees prefer withholding to avoid a large April tax bill. If you withhold, report the amounts on the W-2 and on Schedule H.
Before the First Paycheck
Get an EIN
You need an Employer Identification Number before you can file any employment tax forms. The IRS online application at irs.gov issues one immediately at no cost.12Internal Revenue Service. Get an Employer Identification Number You can also apply by fax or mail using Form SS-4, which takes longer.13Internal Revenue Service. About Form SS-4, Application for Employer Identification Number
Report the New Hire
Federal law requires you to report each newly hired employee to your state’s new hire registry within 20 days of the hire date, which is the first day the employee performs services for pay.14Administration for Children and Families. New Hire Reporting This applies to household employers, not just businesses. If you rehire a worker who was separated from your employment for at least 60 consecutive days, you report them again.15Administration for Children and Families. New Hire Reporting, Answers to Employer Questions Each state runs its own system, so check the reporting method where you live.
Paying the Tax Through the Year
You do not make quarterly payroll deposits or use EFTPS for household employment taxes. They settle up once a year on your personal income tax return. But you still need to have paid enough during the year to avoid an underpayment penalty. Two common approaches:
- Increase your own wage withholding by submitting a new Form W-4 to your employer (or pension payer) requesting extra amounts that cover the household taxes you’ll owe.
- Make quarterly estimated tax payments using Form 1040-ES that include the household taxes.
Either works. Many household employers find adjusting their own W-4 simpler because there are no separate payment dates to track.
Filing at Year-End
Schedule H
Schedule H is where you calculate total FICA and FUTA for the year. Part I covers Social Security and Medicare on all household employees; Part II covers FUTA. The total from Schedule H flows to Schedule 2 of your Form 1040, so household employment taxes become part of your personal return.16Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes The extra withholding or estimated payments you made during the year are credited against the total on your 1040. Overpay and you get a refund; underpay and you owe the difference.
W-2 for Your Employee, W-3 for the SSA
You must give each household employee a Form W-2 showing total wages, Social Security and Medicare wages, and any taxes withheld. For tax year 2026, the W-2 must reach the employee and Copy A must be filed with the Social Security Administration by February 1, 2027.17Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) Form W-3 is the transmittal summary that goes with the W-2s you send to the SSA.18Social Security Administration. Checklist for W-2/W-3 Online Filing The SSA uses these forms to credit your employee’s earnings record, which feeds into their future Social Security benefits, so accuracy matters beyond your own tax picture.
What Non-Compliance Costs
Penalties hit at several stages and stack.
For W-2 forms filed late or incorrectly with the SSA, for returns due in 2026: $60 per form up to 30 days late, $130 per form from 31 days late through August 1, $340 per form after August 1 or not filed at all, and $680 per form for intentional disregard.19Internal Revenue Service. Information Return Penalties
If you underpay through withholding or estimated payments, the failure-to-deposit penalty scales with lateness: 2% of the unpaid amount for 1 to 5 days late, 5% for 6 to 15 days, 10% for more than 15 days, and 15% if more than 10 days pass after an IRS notice demanding payment. Interest accrues on the unpaid balance on top of these amounts.20Internal Revenue Service. Failure to Deposit Penalty
The worst outcome is the Trust Fund Recovery Penalty. When a responsible person willfully fails to collect, account for, or pay over employment taxes withheld from wages, that person is personally liable for a penalty equal to 100% of the unpaid trust fund taxes, on top of the taxes themselves.21Office of the Law Revision Counsel. 26 USC 6672, Failure to Collect and Pay Over Tax
Records to Keep
Hold onto all employment tax records for at least four years after the due date of the return reporting the taxes, or four years after payment, whichever is later.1Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide For 2026, that runs through at least April 2031. Keep copies of Schedule H, W-2s, proof of state unemployment tax payments, the employee’s W-4 if you agreed to withhold income tax, and documentation of wages paid such as canceled checks or payment receipts.
State Rules Are Separate
Publication 926 covers federal taxes only. Most states impose their own unemployment insurance tax on household employers, with wage bases that generally range from $7,000 to more than $50,000. Your state rate depends on factors like claims history, and new employers typically start at a default rate. Some states also require withholding for state disability insurance or paid family leave.
Workers’ compensation is the other state item to check before your employee’s first day. Many states require household employers to carry coverage once a worker reaches a set number of weekly hours, a quarterly earnings threshold, or in some states from the first hire. Rules run from no mandate at all to coverage triggered by a single employee. Missing a workers’ compensation requirement can result in fines and personal liability for a workplace injury, so confirm what your state’s labor department requires before payroll starts.