What would the IRS flag about how you've been paying your nanny?

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. New-employer rate range in Alabama: 0.65% - 6.8%. Missing the registration is one of the most common audit findings — the simulator flags it when your quarterly wages cross the applicable threshold.

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. Depending on where the employee actually works (resident vs. work locality), you may need to register with multiple local agencies. The simulator flags missing local registrations.

Minimum wage. The minimum wage in Alabama is $7.25/hour (federal). If you paid below this rate, the simulator surfaces it as a Department of Labor exposure — separate from tax findings, and often more expensive (back wages plus liquidated damages).

Run the audit above to see exactly which Alabama rules apply to your situation — each finding comes with dollar exposure and a concrete next step.