Let's address the elephant in the room.
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?
We get it. It would be simpler. But here's the thing: it almost never works that way.
Let us explain why—and save you from a potentially expensive mistake.
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
Let's Be Honest About Nannies
Think about your situation:
- 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.
The Good News
Doing this correctly isn't that hard. Yes, there's paperwork. Yes, there are taxes. But it's manageable, especially with the right tools.
Here's your path forward:
- 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.
How NannyKeeper Helps
We make compliance easy:
- 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.