This comes up more than you'd think. One spouse manages the household full-time—childcare, cleaning, cooking, managing schedules—and the other wants to pay them for it. Maybe it's about recognizing the work. Maybe it's a financial planning strategy. Maybe both.
The good news is the IRS has clear rules for this, and they're surprisingly favorable.
The Big Exemptions
When you pay your spouse for domestic work in your home, three major employment taxes simply don't apply:
Social Security (6.2% employer + 6.2% employee) — Exempt. Neither of you pays a dime of Social Security tax on these wages.
Medicare (1.45% employer + 1.45% employee) — Exempt. Same deal. No Medicare tax for either side.
FUTA (0.6% employer) — Exempt. No federal unemployment tax either.
That means you skip the entire 15.3% FICA burden that applies to non-spouse household employees. Plus the 0.6% FUTA. That's a significant chunk of money.
What Still Applies
Spousal wages aren't a total tax-free zone. The income itself is still taxable:
Federal income tax — the wages are taxable income. Federal withholding is voluntary for household employment. If your spouse fills out a W-4 requesting it, you withhold from each payment; otherwise they still report the income on their return.
State income tax — applies in most states. Same rules as federal. Check your state's requirements.
SUTA (state unemployment) — varies. Some states follow the federal FUTA exemption for spouses. Others don't. You'll need to check with your state's unemployment insurance agency.
When This Makes Sense
Paying your spouse as a household employee is worth considering when:
One spouse stays home full-time. They're already doing the work—childcare, housekeeping, managing the home. Paying them formalizes it and creates a paper trail.
Your spouse needs earned income. Earned income unlocks certain benefits—contributing to an IRA, for example, requires earned income. Spousal wages count.
You want a documented household-pay arrangement. Formal records can help the two of you track compensation and income consistently. It does not turn a personal household expense into a business deduction.
Do not use this to claim the Dependent Care Credit. IRS Publication 503 excludes payments to your spouse from qualifying child- and dependent-care expenses.
Side-by-Side Comparison: Spouse vs. Non-Spouse
Here's what the tax picture looks like when you pay $500/week ($26,000/year) to a spouse versus a non-family household employee.
| Tax | Spouse Employee | Non-Spouse Employee |
|---|---|---|
| Social Security (employer 6.2%) | $0 | $1,612 |
| Social Security (employee 6.2%) | $0 | $1,612 |
| Medicare (employer 1.45%) | $0 | $377 |
| Medicare (employee 1.45%) | $0 | $377 |
| FUTA (0.6% on first $7,000) | $0 | $42 |
| Federal income tax | Varies | Varies |
| Total FICA + FUTA saved | $4,020/year |
That $4,020 in annual savings is real money. On $26,000 in wages, you're saving over 15% in employment taxes that simply don't apply.
The Social Security Trade-Off
There's one important thing to understand: because FICA is exempt, these wages don't earn Social Security credits for your spouse.
That matters if your spouse has little or no work history outside the home. Social Security benefits at retirement are based on your 35 highest-earning years. Wages that don't have FICA withholding don't count toward that calculation.
However, your spouse may still qualify for Social Security spousal benefits (up to 50% of your benefit) regardless of their own work history. For most married couples, this is sufficient. But if maximizing your spouse's individual Social Security record matters to you, the FICA exemption actually works against that goal.
The Paperwork (Yes, There's Still Paperwork)
Even with all those exemptions, you still need to handle the employer basics:
W-4. Have your spouse fill out a W-4 only if they ask you to withhold federal income tax.
I-9. Technically required for any employee, though enforcement for spousal household employment is essentially nonexistent.
EIN. Get an Employer Identification Number if a federal or state employer filing applies. It's free and takes 5 minutes—see our EIN guide.
Pay records. Track each payment with date, amount, and any withholding. NannyKeeper generates pay stubs automatically.
W-2 only when required. Issue a W-2 by the adjusted January 31 deadline if you withheld federal income tax. Exempt spouse wages with no federal withholding do not create a federal W-2 by themselves.
Schedule H only when required. File Schedule H when you withheld federal income tax or another household-employment tax applies. State unemployment or wage-reporting rules can still create separate obligations.
Common Mistakes
Assuming every payment requires Schedule H. Exempt spouse wages alone do not. Schedule H is required when you withheld federal income tax or another federal household-employment tax applies.
Assuming state unemployment follows the federal exemption. Some states exempt spousal wages from SUTA. Others don't. Check your state before assuming you're exempt.
Treating wages as a gift. Payments to your spouse for household work are wages, not gifts. They need to be reported as income. Calling it a "household allowance" or "gift" doesn't change the tax treatment if the money is compensation for services.
Paying spousal wages to claim the Dependent Care Credit. Payments to your spouse are not qualifying care expenses for that credit.
How NannyKeeper Handles It
When you add an employee in NannyKeeper and identify them as your spouse, we automatically:
- Zero out Social Security and Medicare calculations on every paycheck
- Skip FUTA in the annual calculation
- Apply the correct income tax withholding based on their W-4
- Determine whether a federal W-2 or Schedule H is required at all
- Generate the correct documents when withholding or another filing trigger applies
You don't need to remember which exemptions apply. We handle it.
See what you'll owe
Use our free calculator to estimate your nanny tax costs for 2026.
FAQ
Can both spouses pay each other as household employees?
Technically, each spouse could employ the other. But it creates circular money flow with no real tax benefit—you'd both be earning income and paying income tax on it. This arrangement raises red flags and isn't recommended.
Do I need to pay minimum wage to my spouse?
The Fair Labor Standards Act exempts spouses from minimum wage and overtime requirements for domestic work. That said, paying a reasonable wage strengthens the legitimacy of the arrangement and creates better documentation.
What if my spouse also works a regular W-2 job?
Their household wages from you are in addition to their other employment income. Their regular employer issues a W-2; you issue a separate household W-2 only if you withheld federal income tax or another reporting rule requires it. Their total income from all sources goes on one tax return. The FICA exemption still applies to the wages you pay them for household work—it doesn't affect their other employer's FICA obligations.