You just hired a nanny, and someone told you about "nanny taxes." Your first thought might be: Can I just pay her as an independent contractor and skip all this?
It would be simpler. But it almost never works that way — and the IRS rules on this are clear enough that getting it wrong leads to back taxes, penalties, and interest from both federal and state agencies.
New to all this? Start with our household employer guide for the big picture.
The Short Answer
Your nanny is an employee, not a contractor. So is your housekeeper. So is your elderly parent's caregiver.
Does this apply to your house cleaner? Read our housekeeper payroll guide →
This isn't a loophole situation or a matter of opinion. The IRS has clear rules, and household workers almost always fall on the "employee" side.
Why It Matters
Calling someone a contractor when they're really an employee isn't just a paperwork distinction. It affects:
- Your legal liability — Misclassification can trigger audits and penalties
- Back taxes — You could owe years of unpaid employment taxes, plus interest
- Your worker's protections — Employees get Social Security credits, unemployment benefits, and workers' comp coverage
If your nanny gets injured on the job and you've been treating her as a contractor, you could be in a tough spot.
The IRS "Control" Test
The IRS uses a simple question to determine employment status: Who controls the work?
As IRS Publication 926 states: "If a worker is your employee, it doesn't matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association."
Signs Your Worker Is an Employee
- You set their schedule
- You tell them what to do and how to do it
- You provide the workplace (your home)
- You provide supplies or equipment
- The relationship is ongoing, not project-based
Signs of an Independent Contractor
- They set their own hours
- They work for multiple clients
- They provide their own tools and supplies
- They control how the work gets done
- They're hired for specific projects
The Control Test in Practice
Most nannies fail every part of the contractor test. Walk through your own arrangement:
- Do you tell your nanny when to arrive and leave? → Employee
- Does she work in your home? → Employee
- Do you decide what she does with your kids each day? → Employee
- Is this an ongoing arrangement, not a one-time gig? → Employee
Even if your nanny has some flexibility—like choosing activities or bringing her own craft supplies—the core relationship is still employment. You're directing the work. She's working in your space, on your schedule, for your family.
The IRS considers almost all nannies to be employees. This isn't a gray area.
Employee vs. Independent Contractor
Household Employee
- You set the schedule and work hours
- Work happens in your home
- You provide supplies and equipment
- Ongoing relationship (not project-based)
- You direct how work is performed
Independent Contractor
- They set their own hours
- Work happens at their location
- They provide their own tools
- Project-based, limited engagement
- They control how work is done
What About Occasional Babysitters?
Babysitters are sometimes (but not always) different. They might qualify as contractors if:
- They're under 18
- Babysitting isn't their main job
- They work for multiple families on their own schedule
- The work is occasional and irregular
But once you establish a regular schedule and start paying meaningful amounts, the relationship usually becomes employment.
Rule of thumb: If they work for you regularly and you're paying above the annual threshold ($3,000 for 2026), treat them as an employee.
What Happens If You Get This Wrong?
If the IRS determines you misclassified an employee as a contractor, you could owe:
| Penalty | Amount |
|---|---|
| Unpaid Social Security & Medicare taxes | 7.65% of all wages, plus the employee share you should have withheld |
| FUTA taxes | 0.6% of first $7,000 per year |
| Interest | Accumulates from when taxes were due |
| Penalties | 1.5% to 40% of unpaid taxes |
| State unemployment penalties | Varies by state |
And that's just the money. You may also face an audit of other tax years.
Your nanny gets hurt too—she'll owe self-employment tax on income that should have had taxes withheld, and she may have trouble claiming unemployment if she loses the job.
You can fix this without a CPA
Most households complete the full nanny payroll setup in under an hour and then run payroll in about 5 minutes per paycheck. You don't need a tax professional unless your situation is unusual: multiple employees in different states, prior-year back taxes, or complex equity arrangements.
Four steps to get set up:
- See what it'll cost → Free nanny tax calculator
- Learn the basics → Complete guide to nanny taxes
- Check your state's rules → State-by-state requirements
- Already paying via Venmo? → What you still need to do
The peace of mind is worth it. You'll sleep better knowing you're protected, and your nanny will appreciate having proper employment protections.
NannyKeeper handles the compliance
NannyKeeper calculates federal and state taxes for every paycheck, generates W-2 and Schedule H at year-end, and sends deadline reminders before every quarterly filing — for $10/month, all 50 states.
- Automatic tax calculations — Every paycheck, federal and state
- Direct deposit — Pay your nanny without cutting checks
- Pay stubs — Professional records for both of you
- Quarterly reminders — Never miss a tax deadline
- W-2 generation — Ready for year-end filing
You're the employer. We're the system that makes it simple.
FAQ
Can I 1099 my nanny?
No. Issuing a 1099 to your nanny is misclassification under IRS Publication 926. The IRS uses the "control test": if you set the schedule, decide what tasks happen each day, and provide the workplace (your home), your nanny is your employee. That's true regardless of how much you pay them, whether the arrangement is full-time or part-time, or whether you found them through an agency. The correct form is a W-2 issued by you.
What happens if I give my nanny a 1099 anyway?
The IRS treats misclassification as a separate violation from underpayment. Penalties stack: unpaid employer FICA (7.65% of all wages), unpaid FUTA (0.6% on first $7,000), interest from the original due date, and misclassification penalties ranging from 1.5% to 40% of the unpaid amount. Your nanny also gets hit with self-employment tax (15.3%) on income that should have had FICA withheld. There's no statute of limitations on unreported payroll taxes.
Are there ANY nannies who count as independent contractors?
Rarely. The only common case is occasional babysitting with no regular schedule, especially by sitters under 18 whose primary occupation isn't household work. If you have a regular weekly arrangement at any pay level, your worker is almost certainly your employee under the IRS control test. See our babysitter tax guide for the edge cases.
What if my nanny prefers being a 1099 contractor?
Your nanny's preference doesn't change the IRS test. Worker classification is determined by the nature of the working relationship, not by what either party wants to call it. Even if your nanny would rather be a contractor for tax reasons, you can't legally classify them that way if they meet the employee test (which virtually all nannies do).
What about au pairs and J-1 visa workers?
Au pairs on J-1 visas are exempt from FICA for their first 2 years in the U.S. while they're classified as nonresident aliens. After 2 years they become resident aliens for tax purposes and FICA applies. See our nanny vs au pair tax guide for the full breakdown.
What about my house cleaner?
If your house cleaner works for multiple families and brings their own supplies, they're typically an independent contractor. If they work only for you on a set schedule using supplies you provide, they're your employee. See our house cleaner classification guide for the test.