The most common question we hear: "Do I actually need to pay nanny taxes?"
The answer depends on one number: the annual threshold.
The Threshold Rule
TL;DR: Pay any single worker $3,000+ in 2026, and you owe nanny taxes on their entire year's wages. Per employee, per calendar year. Below the threshold = no taxes required.
The IRS says you're a household employer—and owe employment taxes—when you pay any single worker above the annual threshold in a calendar year.
For 2026, that threshold is $3,000.
Below that? No taxes required.
At or above? You owe Social Security, Medicare, and unemployment taxes for that worker.
According to IRS Publication 926: "You may owe social security and Medicare taxes and need to file Schedule H... if you paid cash wages of $3,000 or more in 2026 to any one household employee."
How the Threshold Works
Per employee, not total If you pay three different babysitters $2,500 each, you don't owe taxes on any of them. The threshold applies individually.
Calendar year basis The threshold resets every January 1st. Pay someone $2,500 in December 2025 and $2,500 in January 2026? No problem—neither year crosses the threshold.
Once you cross, you're in If you pay your nanny $3,000 in March 2026, you owe taxes on their entire year's wages—not just the amount over $3,000.
Real-World Scenarios (2026)
| Scenario | Crosses Threshold? |
|---|---|
| Babysitter: $75/week for 30 weeks | No ($2,250) |
| Babysitter: $75/week for 40 weeks | Yes ($3,000) |
| Nanny: $600/week, year-round | Yes ($31,200) |
| Housekeeper: $200/month for 12 months | No ($2,400) |
| Two babysitters: $2,500 each | No (per-person threshold) |
What $3,000 Actually Looks Like
The threshold sounds high until you do the math:
- $58/week for a full year
- $250/month for a full year
- $75/week for 40 weeks
A regular babysitter for date nights can easily cross this without you realizing it.
What Happens When You Cross
Once any single worker hits the threshold, you need to:
- Get an EIN — Your employer tax ID number (free at irs.gov)
- Withhold taxes — 7.65% from their pay for Social Security + Medicare
- Pay employer taxes — Your 7.65% share, plus unemployment taxes
- File quarterly — Report and pay taxes four times per year
- Issue a W-2 — By January 31st of the following year
Use our calculator to see exactly what you'll owe.
Cash Threshold vs. FUTA Threshold
There's actually a second threshold that confuses people:
- $3,000 (2026): You owe Social Security and Medicare taxes
- $1,000 in any quarter: You owe federal unemployment (FUTA) taxes
Most families who cross the cash threshold also cross the $1,000 quarterly threshold. But technically, these are separate rules.
Strategies for Staying Under
If you're approaching the threshold and want to stay under, you have a few options:
1. Use multiple workers If you need 50 hours of childcare per week, using two babysitters keeps each under the threshold.
2. Use an agency If you hire through a staffing agency, they're the employer—not you. You just pay the agency.
3. Track carefully Know exactly what you've paid each person. Don't guess.
Important: Don't try to artificially split payments or misreport wages. The IRS considers that tax evasion.
Why the Threshold Exists
The threshold keeps the IRS from requiring tax paperwork for truly occasional workers. Paying a neighborhood teen $30 to mow your lawn shouldn't trigger federal reporting.
But once you're paying someone enough that it looks like employment, the rules kick in.
When to Start Tracking
We recommend tracking from January 1st if you have any regular household worker. Even if you think you'll stay under the threshold, you might be surprised.
Better to know you're approaching the threshold than to discover you crossed it months ago.
The Threshold Changes Annually
The IRS adjusts the threshold periodically for inflation. Here's the recent history:
| Year | Threshold |
|---|---|
| 2024 | $2,700 |
| 2025 | $2,800 |
| 2026 | $3,000 |
Always check the current year's threshold—don't assume it's the same as last year.
FAQ
Does the threshold include tips?
Yes. All cash wages count toward the threshold, including tips you give directly.
What about reimbursements for supplies?
No. Reimbursements for work-related expenses don't count toward the threshold. But be careful—if you're padding "reimbursements" to avoid the threshold, the IRS considers that wages.
Does vacation pay count?
Yes. Paid time off is wages and counts toward the threshold.
What if I pay room and board?
The fair market value of room and board can count as wages. This gets complicated—consult a tax professional if it applies to you.
Ready to Handle Nanny Taxes?
If you've crossed the threshold (or you're about to), NannyKeeper makes compliance simple:
- Automatic tax calculations for every paycheck
- Threshold tracking so you know exactly where you stand
- Quarterly reminders before every deadline
- W-2 generation ready for year-end
See what you'll owe
Use our free calculator to estimate your nanny tax costs for 2026.