Nanny Tax Calculator

Understanding Your Household Employment Tax Obligations

Hiring a nanny, housekeeper, or in-home caregiver transforms you into a household employer with specific federal and state tax obligations. These requirements, commonly called the "nanny tax," apply when you pay a household employee $2,700 or more per year (2024 threshold). Many families unknowingly violate tax laws by paying caregivers cash without proper withholding and reporting. Beyond legal compliance, proper tax payment provides crucial benefits: your employee can claim Social Security credits, qualify for unemployment benefits, and access workers' compensation. This calculator helps you understand the true cost of household employment and avoid penalties that can reach thousands of dollars.

The nanny tax encompasses several components. Social Security and Medicare taxes (FICA) equal 15.3% of wages, split evenly between employer and employee—7.65% each. Federal unemployment tax (FUTA) adds 6% on the first $7,000 of wages, though a credit typically reduces this to 0.6%. State unemployment insurance varies widely by state, ranging from less than 1% to over 6% of wages. Some states also require disability insurance or workers' compensation. When you add these taxes to the gross wages you promised your nanny, the total cost can surprise families budgeting for childcare.

Federal Insurance Contributions Act (FICA) Taxes

FICA taxes fund Social Security and Medicare. For 2024, Social Security tax applies at 6.2% up to the wage base of $168,600, while Medicare tax applies at 1.45% with no wage cap. When combined, the employer pays 7.65% and withholds another 7.65% from the employee's gross pay. The calculation follows this formula:

For example, if you pay your nanny $40,000 annually, you owe $3,060 in employer FICA and must withhold $3,060 from their paychecks. High earners face an additional 0.9% Medicare tax on wages exceeding $200,000, though this rarely affects household employees. The FICA threshold of $2,700 annually means you don't owe these taxes if you pay less, though other reporting may still apply.

Federal Unemployment Tax (FUTA)

FUTA provides unemployment benefits to workers who lose their jobs. The statutory rate is 6% on the first $7,000 of wages per employee, but employers who pay state unemployment taxes typically receive a 5.4% credit, reducing the effective FUTA rate to 0.6%. This means maximum FUTA liability equals $42 per household employee annually. The calculation is:

If you pay $40,000 in wages, FUTA applies only to the first $7,000, resulting in $42 federal unemployment tax. You pay FUTA if you paid $1,000 or more in any calendar quarter or employed a household worker for any portion of a day in 20 or more different weeks. Unlike FICA, FUTA is paid entirely by the employer—you don't withhold it from employee wages.

State Unemployment Insurance (SUI)

Every state requires unemployment insurance, but rates and wage bases vary dramatically. New states employers often receive a standard new employer rate around 2-3%, which can increase or decrease in future years based on claims history. Some states cap taxable wages at $7,000 like federal FUTA, while others have wage bases exceeding $50,000. California, for instance, has a wage base of $7,000 with rates typically between 1.5% and 6.2%. New York's wage base reaches $12,500. This calculator uses an estimated average state rate of 3% on the first $10,000 of wages, but consult your state workforce agency for precise requirements.

The estimated state unemployment formula used here is:

For $40,000 in wages, estimated state unemployment tax equals $300. Some states also require disability insurance (SDI) or temporary disability insurance (TDI), adding another 0.5% to 1.2% of wages. California's SDI rate is 1.1% on the first $153,164 of wages (2024), withheld from the employee's check.

Additional State Requirements

Beyond unemployment insurance, several states mandate additional coverage. California, New Jersey, New York, Hawaii, Rhode Island, and Puerto Rico require temporary disability insurance. This provides partial wage replacement when employees cannot work due to non-work-related illness or injury. Workers' compensation insurance, covering work-related injuries, may be required depending on your state and the number of employees. Some states exempt household employers, while others require coverage for all employees. Check your state's workers' compensation board for specific rules.

Filing and Payment Requirements

Household employers report nanny taxes using Schedule H (Form 1040) as part of their annual income tax return. Unlike business employers who file quarterly Form 941, household employers typically pay FICA and FUTA annually with their personal returns. However, you may need to increase your quarterly estimated tax payments or adjust withholding from your own wages to avoid underpayment penalties. State unemployment taxes require separate quarterly or annual filings with your state workforce agency.

You must provide your employee with Form W-2 by January 31 showing total wages and taxes withheld. You also file Copy A of W-2 with the Social Security Administration. Failure to file W-2s can result in penalties starting at $60 per form. If you pay more than $1,000 in quarterly wages to all household employees, consider making quarterly estimated tax payments to avoid a large tax bill when you file your return.

Common Mistakes and Penalties

Many families fall into tax traps with household employees. Treating your nanny as an independent contractor by issuing a 1099 is illegal if you control their work hours, methods, and duties—the IRS will reclassify them as employees and assess back taxes plus penalties. Paying under the table exposes you to back tax liability, penalties, and potential legal issues if your employee files for unemployment or Social Security benefits. Misclassifying workers costs families tens of thousands in penalties and back taxes.

The penalty for failing to file Schedule H or pay employment taxes can reach 100% of the tax owed in cases of willful neglect. Failure to provide W-2s results in $60 to $310 per form depending on how late. Interest accrues on unpaid taxes from the due date. If you discover past non-compliance, the IRS offers some relief through voluntary disclosure programs. Many payroll companies specialize in household employment and can help you stay compliant for $500-1,500 annually.

Benefits of Compliance

While nanny taxes add significant cost, compliance provides important benefits. Your employee builds Social Security credits toward retirement benefits and becomes eligible for Medicare. They can claim unemployment benefits between jobs. If you're audited or investigated, proper tax payment and documentation protect you. Some families claim dependent care tax credits or FSA benefits that require providing your employee's Social Security number—impossible if you're paying under the table. Finally, many states require proof of workers' compensation coverage before allowing in-home childcare, creating additional complications if you're not properly registered as an employer.

Important Disclaimer: This calculator provides estimates for typical situations. Actual tax obligations vary by state and individual circumstances. Consult a tax professional or payroll service specializing in household employment for personalized advice. State unemployment rates, disability insurance requirements, and workers' compensation rules change frequently. This calculator uses 2024 federal thresholds and estimates for state obligations.

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