Nanny Share Taxes: How Two Families Handle Payroll

A nanny share sounds like the perfect solution: two families split one great nanny, share the costs, and the kids get built-in playmates. Everyone wins.

But when it comes to taxes, things get more complicated than you might expect. The key thing to understand: each family is a separate employer. You don't combine your payments into one. That means two EINs, two W-2s, and two separate tax calculations.

Here's everything you need to know to handle nanny share taxes correctly.

Why Are Both Families Employers?

TL;DR: The IRS looks at who controls the work. In a nanny share, both families exercise control when the nanny is caring for their children—making both families employers.

According to IRS Publication 926, you have a household employee "if you hired someone to do household work and that worker is your employee." The key factor is control: if you control what work is done and how it's done, you're the employer.

In a nanny share:

• The Smith family controls the nanny when she's caring for their kids
• The Johnson family controls her when she's caring for theirs
• Both families set expectations, provide instructions, and determine schedules

Since both families exercise control, both families are employers. This isn't optional or negotiable—it's how the IRS defines employment relationships.

What About a "Lead Family" Arrangement?

Some families try to designate one household as the "employer" to simplify things. This doesn't work from a tax perspective. If both families:

• Pay the nanny (even if one reimburses the other)
• Direct the nanny's work with their children
• Have their children cared for

Then both families have an employment relationship, regardless of paperwork arrangements.

How the $3,000 Threshold Works

The good news: the $3,000 threshold (for 2026) applies separately to each family.

Example 1: Both Families Over Threshold

• Family A pays the nanny $20,000/year
• Family B pays the nanny $20,000/year
• Both families exceed $3,000 → Both owe employment taxes

Example 2: One Family Under Threshold

• Family A pays the nanny $18,000/year (4 days/week)
• Family B pays the nanny $2,500/year (occasional coverage)
• Family A exceeds threshold → Owes employment taxes
• Family B is under threshold → No employment taxes required

Example 3: Both Under Threshold (Rare)

• Family A pays the nanny $2,000/year
• Family B pays the nanny $2,500/year
• Neither family exceeds $3,000 → No employment taxes required

This scenario is rare with true nanny shares, but could apply to occasional babysitting arrangements.

The Key Point

Each family only counts their own payments, not the combined total. The nanny's total income ($40,000 in Example 1) doesn't matter for determining each family's threshold—only what each family individually paid.

Two W-2s, Two Schedule Hs

At year-end, your nanny receives two W-2s—one from each family. Each W-2 shows only that family's wages and withholdings.

Your nanny combines both W-2s when filing their personal tax return, reporting $40,000 in total wages.

What the Nanny Sees

From your nanny's perspective, they have two jobs with two employers. Their tax return will show:

• W-2 #1: $20,000 from the Smith Family
• W-2 #2: $20,000 from the Johnson Family
• Total wages: $40,000

This is actually beneficial for your nanny—they get proper documentation of all their income, which helps with loans, rental applications, and Social Security credits.

The Overtime Challenge

Here's where nanny shares get tricky. Overtime rules apply to your nanny's total hours worked per week—not hours worked for each family separately.

The Federal Rule

Under the Fair Labor Standards Act (FLSA), employees must receive 1.5× their regular rate for hours over 40 per week. This applies to total hours across all employers in a "joint employment" situation.

Example:

• Family A schedules 25 hours/week
• Family B schedules 25 hours/week
• Total: 50 hours/week
• 10 hours should be paid at overtime rates

Who Pays the Overtime?

This is the million-dollar question, and there's no single "right" answer. Here are the common approaches:

Option 1: Split Overtime Proportionally

If both families use roughly equal time, split overtime costs proportionally.

Option 2: Whoever Causes It, Pays It

The family whose hours push the total over 40 pays for overtime.

Scenario: Family A uses 30 hours, Family B uses 20 hours

• First 40 hours: Split based on usage (30/20)
• Last 10 hours: Family A pays OT rate (they pushed it over 40)

Option 3: Cap Total Hours at 40

Some families structure their share so total hours never exceed 40, avoiding overtime entirely.

• Family A: 20 hours max
• Family B: 20 hours max
• Total: 40 hours (no overtime)

Document Your Agreement

Whatever approach you choose, put it in writing before you start. Disagreements about overtime costs are one of the biggest sources of conflict in nanny shares.

New for 2025-2028: Your nanny may be able to deduct overtime pay from federal income tax under the OBBBA. Learn about the overtime deduction →

Calculating Each Family's Taxes

Each family calculates employment taxes only on their own payments.

Family A's Tax Calculation

Family B's Tax Calculation

Identical calculation:

Employee Withholding

Each family also withholds from their portion of the nanny's pay:

• Social Security: 6.2%
• Medicare: 1.45%
• Federal income tax: Optional (if requested by employee)

The nanny pays these taxes regardless—the question is just whether each family withholds it from paychecks or the nanny pays it themselves when filing taxes.

Each Family Needs an EIN

Both families need their own Employer Identification Number (EIN). You cannot share an EIN—each employer must have their own.

Getting an EIN

• Cost: Free
• Time: 5 minutes online
• Where: IRS.gov EIN application

You'll use your EIN on:

• W-2 forms
• Schedule H
• State unemployment registrations
• Quarterly tax payments (if applicable)

State Registrations

Each family also needs to register separately with their state's unemployment insurance program. In most states, this happens when you file your first quarterly report or can be done proactively online.

Practical Tips for a Smooth Nanny Share

1. Create a Written Agreement

Before you start, document:

• How hours are split (e.g., 50/50, or specific days)
• How overtime is handled and paid
• Who pays for sick days, holidays, and vacation
• What happens if one family leaves the share
• Communication expectations between families
• Backup plans if the nanny is sick
• How schedule changes are handled

2. Track Hours Separately

Each family should maintain their own records of hours worked. This matters for:

• Accurate payroll calculations
• Overtime tracking
• Expense documentation for tax credits
• Resolving any disputes

3. Coordinate on Benefits

If you provide benefits (paid time off, health insurance contributions), coordinate with the other family:

• Don't let the nanny be shortchanged (e.g., each family gives 5 vacation days = 10 total)
• Don't double-compensate accidentally
• Agree on which holidays are paid and by whom

4. Use Separate Payment Methods

Keep things clean by having each family pay the nanny separately:

• Family A pays via their own check/direct deposit
• Family B pays via their own check/direct deposit

Avoid having one family collect from the other and pay the nanny combined—this creates confusion and potential tax issues.

5. Plan for Changes

Nanny shares often evolve. One family may:

• Move away
• Have schedule changes
• Need more or fewer hours
• Have a new baby

Build flexibility into your agreement for how to handle these changes, including notice periods and transition plans.

Common Nanny Share Mistakes

Mistake 1: Only One Family Files Taxes

Wrong: "We'll just have one family handle all the paperwork."

Right: Both families are employers and must file their own taxes. If only one family files, the other is breaking the law.

Mistake 2: Combining Payments on One W-2

Wrong: "Let's just put all $40,000 on one W-2 to simplify."

Right: Each family issues their own W-2 for their own payments. The IRS expects employers to report what they paid.

Mistake 3: Ignoring Overtime

Wrong: "She works 50 hours, but we each only pay for 25, so no overtime."

Right: Total hours matter. A 50-hour week means 10 hours of overtime—someone needs to pay the premium.

Mistake 4: Uneven Cost Splitting

Wrong: "We split 50/50 even though they use 30 hours and we use 10."

Right: Base cost sharing on actual hours used. Uneven splits breed resentment.

Mistake 5: No Written Agreement

Wrong: "We're friends, we don't need a contract."

Right: Even the best friendships benefit from clear expectations in writing. Disagreements happen, and documentation protects everyone.

What If One Family Wants Out?

This happens more often than you'd think. Here's how to handle it:

Immediate Considerations

1. Notice period: Follow whatever your written agreement specifies (ideally 30-60 days)
2. Nanny's employment: Decide if the remaining family will employ full-time, or if the nanny seeks other work
3. Final pay: Each family handles their own final paycheck and any owed vacation

Tax Implications

• The departing family issues a W-2 for wages paid through their end date
• The remaining family continues normal payroll
• Both families file Schedule H for their respective portions

Finding a New Share Partner

If the remaining family wants to continue the share arrangement:

• Start fresh with a new agreement
• The new family needs their own EIN and registrations
• Overtime calculations reset with the new arrangement

Frequently Asked Questions

Can we pay the nanny through one family and have the other reimburse? Technically possible, but not recommended. This creates confusion about who is actually the employer and can cause issues with tax documentation. Each family should pay their own portion directly.

What if we use a nanny payroll service? Services like NannyKeeper can handle both families separately. Each family has their own account, pays their own portion, and receives their own tax documents. This is much easier than coordinating manually.

Does it matter if we're friends vs. strangers? Not for tax purposes. The legal structure is identical regardless of your relationship. However, strangers may want more formal written agreements.

What about a nanny share with three families? Same principles apply—three separate employers, three EINs, three W-2s. Overtime becomes even more complex with three families to coordinate.

Can we rotate which home the care happens in? Yes. Where care occurs doesn't change the employment relationship. If your nanny only works at Family B's home, Family A is still the employer when she's caring for Family A's children.

What if our nanny is paid very little by one family? If one family pays under $3,000/year, they don't owe employment taxes for that portion. But the nanny should still receive a W-2 (or the family provides their information for the nanny's tax return).

Is a Nanny Share Right for You?

Nanny shares work well when:

• Both families have similar childcare needs and philosophies
• Schedules align well (similar work hours, compatible days)
• You communicate openly and resolve conflicts maturely
• You're both willing to handle the administrative complexity
• Your children get along (or are young enough that this isn't yet a factor)

Nanny shares get complicated when:

• One family's needs change frequently
• There's conflict over parenting styles or discipline
• Neither family wants to handle payroll properly
• Overtime becomes a recurring issue
• Communication breaks down

The Bottom Line

A nanny share can be a fantastic arrangement—quality care at a lower cost per family, built-in socialization for your kids, and a better job for your nanny (more hours, potentially better pay).

But don't cut corners on the tax side. Both families are employers, both need to handle payroll correctly, and both need to coordinate on the tricky stuff like overtime.