How To Pay Your Nanny

When hiring a nanny, the IRS generally considers them household employees, not independent contractors, so treating them as 1099 workers is not appropriate and can lead to penalties.

Here’s a breakdown of the best path forward and how to stay compliant:

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✅ Correct Classification: Household Employee

A nanny who works in the family’s home and is subject to their control regarding what work is done and how it’s done is a household employee, not a contractor. That means:

   •   No 1099-NEC.

   •   Yes to a W-2.

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📄 What Is Schedule H?

Schedule H (Household Employment Taxes) is a form you attach to your personal income tax return (Form 1040) if you hire and pay a household employee, like a nanny, and you owe household employment taxes (Social Security, Medicare, FUTA, etc.).

🏦 What If I Use a Payroll Service?

Using a payroll provider (like Poppins Payroll, Gusto, HomePay, SurePayroll, etc.) makes it much easier to calculate, withhold, and remit taxes—but:

• You are still the employer, not the payroll service.

• Unless the payroll service files all required employer tax forms and pays all federal taxes on your behalf as a “third-party designee,” you are responsible for reporting the employment taxes on Schedule H.

Some payroll providers offer a “nanny tax compliance” service, which includes filing Schedule H for you as part of your return or sending you a ready-to-file Schedule H. If that's the case, great—you just include it with your 1040. Other payroll providers will remit the taxes for you on an ongoing basis throughout the year, in which case you would not be required to file the Schedule H with your personal tax return.

✅ If you did not use a payroll service that paid the taxes on your behalf, you MUST file Schedule H if:

• You paid your nanny $2,700 or more in 2024 (the threshold updates annually),

• You withheld any federal income tax, even if you paid less than $2,700, or

• You owe FUTA (federal unemployment tax).

• You also must issue your household employee a W2 by January 31st of the following tax year.

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✅ Other Considerations

   •   Workers’ compensation insurance: Required in some states for household employees. In Oregon, household employers, including those who hire nannies, are not legally required to provide workers' compensation insurance. However, it is highly recommended to obtain a workers' compensation policy for your nanny, as it offers protection if they are injured on the job

   •   Minimum wage & overtime laws: Household employers must comply with federal and state wage laws.

   •   Benefits: Not required, but can offer perks like PTO or health reimbursement arrangements.

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🚫 What to Avoid

   •   Paying under the table – not only illegal, but it disqualifies the nanny from Social Security, unemployment benefits, and can lead to significant IRS penalties.

   •   Classifying as a 1099 contractor – this is a common error and could result in IRS/State audits and back taxes with interest and penalties.

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📝 Summary of Steps for Compliance

1. Get a Household EIN

2. Check state new hire and unemployment requirements

3. Set up payroll (preferably via a household payroll service)

4. Withhold and remit appropriate taxes

5. Issue Form W-2 at year-end

6. File Schedule H with Form 1040 (unless the taxes have already been remitted on your behalf by the payroll provider.

If you have additional questions as it pertains to hiring a nanny or other household employee, you can schedule an online advisory session here:

https://www.caslerfinancial.com/scheduling