What would the IRS flag about how you've been paying your nanny?
Answer 12 questions. We'll check common federal and state household-employment issues and show you what needs review.
Educational only. Not tax, legal, or accounting advice. Consult a licensed tax professional for your specific situation.
How Alabama household employer rules differ
Alabama exempts domestic help in a private home from state income tax withholding. Household employers don't withhold Alabama state income tax from their nanny's paycheck, though the nanny remains responsible for any income tax they owe at year-end. Employer-side SUI is still required.
State unemployment insurance (SUI). Alabama requires household employers to register and pay state unemployment tax once wages cross its applicable threshold. New York and DC use $500 per quarter; many states use $1,000. 2026 unemployment tax rates in Alabama: 0.2% - 6.8%. Missing the registration is one of the most common audit findings.
No state income tax withholding. Alabama does tax individual income, but it exempts wages for domestic service in a private home from withholding, so there's nothing to deduct from your nanny's paycheck on the state side. Your nanny still reports those wages on their own Alabama return. You owe the federal baseline (FICA, FUTA, Schedule H) and any SUI obligation.
Local income taxes. Alabama has significant local income tax layers: Some Alabama cities have occupational taxes, but Birmingham's exempts domestic workers.
Minimum wage. The minimum wage in Alabama is $7.25/hour (federal). Paying below the rate that applies is a wage problem with the Department of Labor, separate from taxes and often more expensive, because you owe the back wages plus a penalty on top.
Alabama household employer questions
The state-specific rules behind every finding.