Your Nanny Filed for Unemployment. Now What?

You just got a letter from your state labor agency. Your former nanny filed for unemployment benefits and listed you as their employer.

Now you're wondering: Do I owe something? Am I in trouble? What do I do?

You're going to be fine. Here's what's actually going on.

Can a Nanny File for Unemployment?

Yes. Your nanny is a household employee—not an independent contractor. Like any W-2 employee, they're legally entitled to unemployment benefits if they lose their job through no fault of their own.

This surprises a lot of families, but it's been the law for decades. IRS Publication 926 is clear: if you paid a household employee $1,000 or more in any calendar quarter, you owe federal unemployment tax (FUTA). Most states have their own unemployment tax (SUTA) requirements too.

The real question isn't whether your nanny can file. It's whether you were prepared for it.

What Happens When They File

Step 1: Your Nanny Files a Claim

Your former nanny goes to their state labor agency (in person or online) and lists their employment history—including working for your family. They provide dates of employment, wages earned, and the reason they left.

Step 2: You Receive Official Notice

The state sends you a notice by mail (or online if you have an employer account). This typically includes:

• The name of the claimant
• Dates of employment they reported
• Wages they reported
• The reason for separation they gave
• A deadline to respond (usually 10–14 days)

Do not ignore this notice. Failure to respond can result in automatic approval of the claim and potentially higher unemployment insurance rates for you.

Step 3: You Respond

You'll need to confirm or correct:

• Employment dates
• Wages paid
• Why the employment ended

This is where the details matter. Was the nanny fired? Laid off? Did they quit? The reason affects whether they qualify for benefits.

Step 4: The State Makes a Determination

Based on both your response and the nanny's claim, the state decides whether benefits are approved. Both parties can appeal the decision.

Step 5: Benefits Are Paid (or Denied)

If approved, the state pays benefits from its unemployment insurance fund. You don't write a check to your former nanny. The funds come from pooled employer contributions.

However, a successful claim may increase your SUTA rate slightly for future years—typically a bump of 0.2–0.5%, which on $10,000 in wages would mean about $20–$50 per year more.

When Your Nanny Qualifies (and When They Don't)

Unemployment eligibility depends on why the employment ended:

Key point: If you contest a claim, the burden of proof is on you. You'll need documentation—written warnings, text messages, a work agreement, time records. Verbal warnings you never wrote down won't hold up.

The Two Scenarios

When a nanny files for unemployment, families fall into one of two situations. Your next steps depend on which one you're in.

Scenario A: You Were Paying Taxes

If you've been handling payroll correctly—withholding taxes, paying FUTA and SUTA, filing quarterly—this is straightforward.

What to do:

1. Respond to the state notice within the deadline
2. Confirm wages and dates from your payroll records
3. Provide the separation reason honestly
4. Contest if appropriate (e.g., they were fired for documented cause)
5. That's it. Your SUTA rate may increase slightly, but you're compliant.

If you've been using a payroll service like NannyKeeper, you'll have all the records you need.

Scenario B: You Weren't Paying Taxes

If you were paying under the table, the unemployment claim just exposed it. Here's what happens:

1. The state discovers no SUTA payments

Your former nanny listed you as their employer, but the state has no record of unemployment tax payments from you. Red flag.

2. The state contacts the IRS

States and the IRS share employment data. Now the IRS knows you had a household employee and never filed Schedule H or paid FUTA.

3. You owe back taxes

Not just unemployment taxes. All employment taxes going back to when you hired them:

For a nanny paid $500/week for 2 years, that's roughly $12,000 in back employment taxes—before penalties and interest.

4. Penalties and interest stack up

On top of back taxes: failure-to-file penalties (up to 25%), failure-to-pay penalties (up to 25%), and interest (~7% annually). A $12,000 tax bill can become $18,000–$25,000.

5. Your nanny may be denied benefits anyway

The painful irony: since you never paid into the unemployment system, your former nanny may be denied benefits. But you still owe all the back taxes regardless.

What to Do Right Now

No matter which scenario you're in:

How to Prevent This From Being a Crisis

The unemployment claim itself isn't the problem. Nannies have every right to file. The problem is being caught unprepared.

If you're currently employing a nanny, here's how to make sure an unemployment claim is a non-event:

1. Pay Legally from Day One

Withhold taxes, pay your employer share, file quarterly. It costs a few thousand per year in taxes and $10/month for payroll.

2. Keep Records

Document everything: pay dates, amounts, hours worked. A payroll service does this automatically. If you ever need to respond to an unemployment claim, you'll have everything at your fingertips.

3. Use a Work Agreement

A written nanny contract that includes job responsibilities, compensation, and grounds for termination protects both parties. It's the #1 thing you need if you ever contest a claim.

4. Document Performance Issues

If there are attendance or performance problems, document them in writing (email or text is fine). Verbal warnings alone won't hold up in an unemployment hearing.

5. Handle Termination Properly

When it's time to part ways:

• Give notice when possible
• Pay all wages owed, including accrued PTO if your state requires it
• Provide their final pay stub
• Don't delay—most states have strict final paycheck deadlines

FUTA and SUTA: The Basics

Two taxes fund unemployment benefits. You need to pay both.

FUTA (Federal Unemployment Tax)

Per IRS Publication 926:

• Threshold: $1,000 in total cash wages in any calendar quarter
• Rate: 6.0% on the first $7,000 in wages per employee per year
• Credit: Up to 5.4% for timely state unemployment tax payments
• Net rate: 0.6% (if you pay SUTA on time)
• Max FUTA per employee per year: $42

FUTA is reported on your Schedule H with your annual tax return.

SUTA (State Unemployment Tax)

Every state has its own unemployment tax program:

• Rates: Typically 1%–5% for new employers (varies by state)
• Wage base: Varies by state ($7,000 to $60,000+)
• Filing: Usually quarterly
• Registration: Required in your state—check your state's requirements

Most states assign new employers a standard rate (often around 2.7%) that adjusts over time based on your claims history.

FAQ

Can my nanny really file for unemployment?

Yes. Nannies are W-2 employees, and like all employees, they're eligible for unemployment benefits if they lose their job through no fault of their own. The IRS requires household employers who pay $1,000+ in any quarter to pay federal unemployment tax (FUTA), which funds this benefit.

Do I have to pay my nanny's unemployment benefits directly?

No. Unemployment benefits are paid by the state from pooled funds that all employers contribute to via FUTA and SUTA taxes. You don't write a check to your former nanny. However, a successful claim may slightly increase your state unemployment tax rate for future years.

What if I fired my nanny for cause?

You can contest the claim. But you'll need written documentation—performance warnings, text messages about issues, a signed work agreement outlining grounds for termination. The burden of proof is on you as the employer. Verbal warnings alone typically aren't sufficient.

What if I was paying under the table?

The unemployment claim will expose that you weren't paying employment taxes. The state will discover no SUTA payments, notify the IRS, and you'll owe back taxes (employer AND employee share), plus penalties of up to 25% and interest. Consult a CPA or tax attorney immediately. See our guide to catching up on back nanny taxes.

How long does the unemployment process take?

Most states process initial claims within 2–4 weeks. If you contest the claim, the appeals process can take several months. Respond to the initial notice within the deadline (usually 10–14 days) to avoid automatic approval.

How much are unemployment benefits?

Benefits vary by state but are typically 30–50% of the employee's weekly wages, up to a state maximum. Most states provide benefits for up to 26 weeks, though some states cap at fewer (Florida and North Carolina: 12 weeks; several others: 20–24 weeks). The exact amount depends on the state, the employee's earnings history, and the state's maximum weekly benefit.

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