Guide · updated 2026-08-01
What you take on when you hire a nanny
Paying someone to work in your home can make you an employer, at a lower threshold than most people expect. The federal tests, the two separate triggers, and the state layer federal guidance does not mention.
Control decides employment, not hours or job title
The IRS common-law test asks who directs the work. If you set the schedule and decide how the job is done, the worker is generally your employee — whether they work five hours a week or fifty, and regardless of what the arrangement is called. Someone who controls their own work, brings their own equipment, and serves other clients is generally self-employed and handles their own taxes.
Two thresholds trigger two different taxes
Social Security and Medicare apply once cash wages to a household employee reach the annual threshold — $3,000 for 2026 under Publication 926 — at 6.2% and 1.45% from each side. Federal unemployment tax has an entirely separate trigger: $1,000 paid in any calendar quarter, applied to the first $7,000 of wages. Crossing one does not mean crossing the other, and a part-time summer arrangement can trigger FUTA without triggering FICA.
Income-tax withholding is optional; the rest is not
Federal income tax withholding is not required for household employees unless both parties agree to it. Social Security and Medicare are different — they apply automatically once wages cross the threshold, and they are reported on Schedule H with your own personal tax return rather than through business payroll filings. That is what keeps household employment administratively lighter than running a company payroll.
The state layer is where most of the work is
States generally require employers to register for unemployment tax, report the new hire shortly after the start date, and in many cases carry workers' compensation once hours or wages cross a threshold. Requirements differ sharply: New Jersey requires coverage with no threshold, while several states exempt domestic employment entirely. State unemployment taxable wage bases also range from $7,000 to well over $70,000.
Paying properly is worth more to the employee than the difference
Wages reported build the employee's Social Security and Medicare record and their eligibility for unemployment benefits if the job ends. Paying off the books removes both, and leaves the household exposed on back taxes, penalties, and — in states that require it — an uninsured workplace injury.
Official sources for this guide
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