Nanny Tax

Written By
Paul Tracy
Updated November 4, 2020

What is a Nanny Tax?

A nanny tax is a colloquial term for the Social Security, Medicare and federal unemployment taxes due on the pay to caregivers.

How Does a Nanny Tax Work?

For example, let's say John and Jane Doe hire Sally Smith to take care of their two preschool-age children while they are at work. Over the course of the year, they pay Sally Smith $15,000.

The IRS deems Sally a household employee, and therefore John and Jane Doe must pay payroll taxes on Sally's $15,000 of income. These payroll taxes are called the nanny tax.

Each year, the IRS announces the minimum income on which nanny tax applies. In most cases, if John and Jane have their 17-year-old son or other family member watch the kids, the tax also does not apply.

Why Does a Nanny Tax Matter?

Nanny tax liabilities can come as a surprise to many working parents, and they should take the time to educate themselves about their responsibilities when hiring domestic help. Typically, the nanny tax is tacked on to a taxpayer's tax liability when filing income tax, though failure to pay the nanny tax on a timely basis can trigger interest and penalties from the IRS. Also, states have their own conditions and requirements regarding the nanny tax.

It is important to note that the nanny tax can apply to any domestic help: gardeners, housekeepers and other people who are employed in your home (regardless of whether they are caring for your children).

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Nanny Tax.
Be the first to ask a question

If you have a question about Nanny Tax, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Nanny Tax, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Nanny Tax

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms