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 — applies. Your spouse's wages are reportable income on their tax return (or your joint return). If they fill out a W-4 requesting withholding, you withhold federal income tax from each payment.
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.
You want to shift income. If one spouse earns significantly more, paying the other shifts some income to a potentially lower tax bracket. This works best when filing separately, but consult a tax advisor for your specific situation.
Your spouse needs earned income. Earned income unlocks certain benefits—contributing to an IRA, for example, requires earned income. Spousal wages count.
You want to claim the Dependent Care Credit. If your spouse cares for your child under 13 while you work, paying them as an employee lets you claim the Child and Dependent Care Credit. But there's a catch—this only works if you file separately, which eliminates the benefit for most couples. Talk to a tax pro before relying on this.
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 so you know how much federal income tax to withhold (if any).
I-9. Technically required for any employee, though enforcement for spousal household employment is essentially nonexistent.
EIN. You need an Employer Identification Number. 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 by January 31. Issue a W-2 showing total wages paid and any income tax withheld. The Social Security and Medicare boxes will show $0—that's correct.
Schedule H. File Schedule H with your personal tax return. Even though the FICA lines are zero, you still report the wages and any income tax withheld.
Common Mistakes
Forgetting to file Schedule H because "there's no FICA." Even with all-zero FICA boxes, if you withheld income tax or paid wages, Schedule H is required.
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 just to claim the Dependent Care Credit. This strategy has strict limitations for married couples filing jointly. The math rarely works out. Get professional advice before going down this path.
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
- Generate a W-2 with the right boxes populated (and the right ones left at $0)
- Prepare Schedule H numbers reflecting the spousal exemptions
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. Both employers issue separate W-2s. 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.