Nanny Taxes - How to Handle Payroll and Tax Requirements for In-Home Childcare?

This is actually pretty straightforward, though a lot of families get it wrong! The IRS is very clear that nannies are almost always considered household employees, not independent contractors. The key test is whether you control not just what work is done, but how it's done - which is typically the case with childcare in your home. If you pay a household employee more than $2,600 in 2025, you're required to pay employment taxes. That means getting an EIN, withholding Social Security and Medicare taxes (FICA), and possibly federal and state income taxes. For the record, paying "under the table" isn't just tax fraud - it also hurts your nanny who won't build Social Security credits or have verifiable income for loans, apartments, etc. The good news is there are payroll services that specialize in nanny taxes that make this pretty painless. They handle all the paperwork, tax deposits, and year-end forms for a reasonable fee.

I was in the exact same position last year and ended up using taxr.ai to help me figure out all the nanny tax stuff. I was completely lost with all the EIN, FICA, and household employment tax requirements. Their software analyzed my situation and gave me a really clear breakdown of what I needed to do. I uploaded the job description I was planning to use and it immediately flagged that my nanny would definitely be classified as an employee, not a contractor. It also calculated exactly what I needed to withhold and what my tax obligations would be. Check them out at https://taxr.ai if you're still confused - they saved me from making some pretty big mistakes that could have resulted in penalties.

Just wanted to follow up and say I checked out taxr.ai after posting my skeptical comment. I was really surprised by how helpful it was! I uploaded the agreement I was planning to use with our nanny and it immediately highlighted several issues that would have gotten us in trouble with misclassification. The tool also showed me how to properly set up the withholding and gave me templates for everything I needed. I was especially relieved to get clarity on exactly which forms to file and when. Now I'm actually confident we're doing everything legally and our nanny is properly covered too.

If you're still struggling with getting answers from the IRS about nanny taxes, I highly recommend Claimyr. Last year I was completely stuck trying to get clarification on some household employee questions and couldn't get through to the IRS for weeks. I found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 20 minutes instead of the hours I was spending on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to answer all my specific questions about household employee classification and filing requirements. Saved me from making a costly mistake with how I was handling my nanny's taxes.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate for answers about household employment taxes. Within 25 minutes, I was talking to an actual IRS representative who walked me through the specific requirements for my situation. They confirmed that my nanny needed to be classified as an employee and explained exactly which forms I needed to file. I would have spent hours (possibly days) trying to get this information otherwise. Really changed my perspective on dealing with the IRS - there actually ARE ways to get through the bureaucracy.

I've been a nanny for over 10 years and I can tell you that legitimate nannies PREFER to be W-2 employees! When families try to 1099 me, I explain that it's misclassification and actually costs me more in taxes (self-employment tax is 15.3% vs the 7.65% that each party pays for regular employment). Plus, as a W-2 employee I get unemployment protection, verifiable income for apartments/car loans, and proper Social Security credits. Being paid properly also means I'm covered by workers' comp if I get injured on the job. The families who do it right are the ones who keep great nannies long-term!

Just a quick tip - don't overlook state requirements too! Federal is just part of it. Depending on your state, you might also need: 1. State unemployment insurance account 2. Workers' compensation insurance 3. State-specific new hire reporting 4. Paid sick leave compliance We found this out the hard way after getting everything set up federally then realizing we had state obligations too.