A nanny holiday bonus is one of the nicest things you can do for your nanny, and it's also a paycheck as far as the IRS is concerned. A cash bonus is wages. That means Social Security and Medicare apply, it goes on the W-2, and the date you pay it decides which tax year it lands in.
None of that should stop you. It just changes how you hand it over: through payroll, on a real pay date, with a plan for how much your nanny actually takes home.
Is a nanny holiday bonus taxable?
Yes. A cash bonus is wages, taxed like any other paycheck. The IRS guide for household employers doesn't carve out bonuses, holiday gifts of cash, or year-end thank-yous, so the same rules that cover your nanny's weekly pay cover the bonus too.
In practice:
- Social Security and Medicare apply to it at the same 7.65% each, if you pay your nanny $3,000 or more in cash wages in 2026 (and then all of the year's wages are taxed, not just the part over $3,000)
- It adds to the wages on your nanny's W-2 and to the totals on your Schedule H
- If your state taxes wages, the bonus counts there as well
What about gift cards and physical gifts?
A gift card is never a tax-free small gift. IRS Publication 15-B says gift cards, "no matter how little, are never excludable as a de minimis benefit," so its value is income your nanny owes income tax on, and it belongs in Box 1 of the W-2. The IRS guide for household employers doesn't say whether a gift card also counts as cash wages for Social Security and Medicare, so the simplest choice is to give the bonus as money through payroll, where the treatment is clear.
A small physical gift, like a scarf or a gift basket, is not wages. The IRS lists low-value holiday gifts "other than cash" as a de minimis benefit, too small to track. Something bigger, like a tablet, sits in between: it isn't subject to Social Security or Medicare, but it is income your nanny owes income tax on, and it belongs in Box 1 of the W-2.
What a $500 bonus costs, worked through
On a $500 cash bonus with no income tax withheld, your nanny takes home $461.75 and the bonus costs you $538.25. The difference on each side is the 7.65% Social Security and Medicare share.
| Your nanny | You | |
|---|---|---|
| Bonus | $500.00 | $500.00 |
| Social Security (6.2%) | -$31.00 | +$31.00 |
| Medicare (1.45%) | -$7.25 | +$7.25 |
| Result | $461.75 take-home | $538.25 total cost |
That assumes your nanny has already passed the $3,000 threshold for the year and is paid under the $184,500 Social Security wage base, which covers almost every full-time nanny.
One exception: wages you pay your spouse or your child under 21 don't count for Social Security and Medicare at all, and neither, with some exceptions, do wages you pay your parent or an employee under 18. A bonus to them follows the same rule. The $3,000 threshold guide has the details.
State taxes can add to both columns. State unemployment tax may apply on your side if your nanny hasn't reached your state's wage base, and some states take a paid-leave or disability share from the paycheck. Check your state guide for your rates.
Does a bonus add federal unemployment tax?
Usually not by December. FUTA only applies to the first $7,000 you pay each employee in the year, and a full-time nanny is past that well before the holidays. A part-time nanny who has earned less than $7,000 so far still has room, so the bonus would add a little FUTA on top.
How to gross up a nanny bonus
A gross-up means paying a larger bonus so your nanny takes home the round number you had in mind. With no income tax withheld, divide the take-home you want by 0.9235.
For a $500 take-home: $500 ÷ 0.9235 = $541.42. Your nanny's 7.65% on that comes to $41.42, leaving exactly $500. Your matching share is another $41.42, so the gross-up costs you $582.84 in total.
If you withhold income tax too, the math depends on the withholding method (more on that below). At the flat 22% rate, a $500 take-home needs about $711, because your nanny's income tax comes out of the bonus as well.
A cheaper route: paying your nanny's share yourself
There's one more option that household employers get. You can pay your nanny's share of Social Security and Medicare yourself instead of withholding it. Your nanny receives the full $500. That share doesn't count as Social Security or Medicare wages, so it doesn't trigger another round of tax, though it is income for your nanny and gets added to Box 1 of the W-2.
On a $500 bonus that costs you $576.50 ($500 plus $38.25 for each share), a little less than the $582.84 gross-up. Our guide to withholding covers how this works for regular pay, too.
NannyKeeper payroll always withholds the employee share, so in the app the gross-up is the way to land on a round take-home number.
Federal income tax on a nanny's bonus
Federal income tax on a bonus is only withheld if you already withhold it for your nanny. Household employers don't have to withhold income tax at all; IRS Publication 926 says to do it "only if your household employee asks you to withhold it and you agree." If you don't withhold it from regular pay, you don't withhold it from the bonus either, and your nanny settles the income tax on their own return.
If you do withhold, a bonus is what the IRS calls a supplemental wage, and Publication 15 gives two ways to handle it:
| Method | How it works | Who can use it |
|---|---|---|
| Combined | Add the bonus to a regular paycheck and withhold on the total, using your nanny's W-4 | Anyone who withholds |
| Flat 22% | Withhold 22% of the bonus, separately from regular pay | Only if you withheld income tax from your nanny's regular pay this year or last year |
Withholding on the part of a year's bonuses over $1 million is a required 37%.
Neither method changes what your nanny owes for the year. They only change how much is held back now versus settled when your nanny files. A flat 22% can hold back more than your nanny will actually owe, which is worth knowing if you're trying to hit a take-home number.
Pay it by December 31 to count in 2026
The year the money is paid decides which year it belongs to. Pay it on December 31 and it is 2026 wages; pay it January 2 and it is 2027 wages, on next year's W-2, even if it's a thank-you for this year.
Either is fine. Just decide on purpose, because the pay date also decides which year's thresholds the bonus counts toward.
When a bonus pushes you over $3,000
This matters most for a part-time nanny or a regular babysitter. The $3,000 test counts every dollar of cash wages you pay in the calendar year, bonus included, and it's all or nothing.
Say you've paid your sitter $2,700 through November. A $400 holiday bonus in December brings the year to $3,100, and now Social Security and Medicare apply to all $3,100, not just the $100 over the line. Pay the same bonus on January 2 and 2026 stays under the threshold.
The same idea applies to FUTA's household test. If your household pays $1,000 or more in cash wages in any calendar quarter of this year or last year, you owe FUTA on this year's wages. A bonus in October through December can be what tips a family over it, and crossing it in 2026 also means FUTA on your 2027 wages. Our $3,000 threshold guide walks through both tests.
How to run a nanny bonus in NannyKeeper
In NannyKeeper, a bonus goes in the Bonus field when you run payroll. Add it to a regular paycheck rather than running it on its own. The app then:
- Adds it to that paycheck's gross pay and applies Social Security, Medicare, FUTA and your state's taxes, the same as regular wages
- Withholds federal income tax on the paycheck's total, bonus included, from your nanny's W-4, which is the combined method. Withholding is on by default in NannyKeeper; if you've turned it off for your nanny, nothing is withheld from the bonus either
- Includes it in your nanny's year-to-date totals, the W-2 and your Schedule H numbers
A bonus run as its own payroll is withheld on as if it were a full paycheck of regular wages. That isn't the combined method, and it can hold back a different amount of income tax, which is why adding the bonus to a regular paycheck is the better choice.
To gross it up, start from the take-home you want divided by 0.9235 and adjust the bonus until the review screen shows that number.
If the paycheck with the bonus also has overtime hours, NannyKeeper usually asks whether the bonus was discretionary. Federal overtime law counts some bonuses toward the overtime rate and leaves others out, and the app shows what each answer adds to overtime pay before you approve. If you're unsure, including it is the safe answer, since it can only raise the overtime you pay.
If you pay by direct deposit, start early. A direct deposit payroll has to be approved at least five business days before payday, and Christmas plus a weekend fall in the last week of December. For a bonus paid on Thursday, December 31, 2026, approve the payroll by Wednesday, December 23.
The bonus is one item on the year-end list. Our year-end checklist has the rest, through the W-2 deadline.
See what you'll owe
Use our free calculator to estimate your nanny tax costs for 2026.
FAQ
Do I have to give my nanny a holiday bonus?
No. There's no legal requirement to give one, unless your nanny contract promises it. If your contract does promise a bonus, pay what it says.
Can I pay the holiday bonus in cash and skip payroll?
Paying in cash doesn't change anything: it's still wages, and it counts toward the year's totals. If your nanny is at $3,000 or more for the year, Social Security and Medicare are owed on it. Even if your nanny is under $3,000, it goes on Schedule H if you owe FUTA or withhold income tax, and on the W-2 if you withhold income tax. Skipping payroll just means tracking all of that by hand. Running it through payroll is simpler.
Should I withhold 22% from my nanny's bonus?
Only if you already withhold federal income tax from your nanny's regular pay. If you don't, there's nothing to withhold on the bonus either. If you do, 22% is one option and adding the bonus to a regular paycheck is the other.
Does a December bonus go on this year's W-2?
Yes, if it's paid on or before December 31. A bonus paid in January goes on next year's W-2, whatever it was for.
How do I make sure my nanny takes home the full bonus amount?
Gross it up. With no income tax withheld, divide the amount you want your nanny to take home by 0.9235. A $500 take-home needs a $541.42 bonus.