Household employee and nanny tax: the 2026 Schedule H walkthrough

The household-employee tax regime — what most people call “the nanny tax” — is the federal payroll tax that applies when a private individual pays a worker to perform services in or around the employer’s home. The governing source is IRS Publication 926, Household Employer’s Tax Guide, and the annual reporting form is Schedule H (Form 1040), Household Employment Taxes, attached to the household employer’s personal Form 1040 at year-end.

The reason this regime matters in 2026 is that the worker pool has shifted. A larger share of US households now hire ongoing in-home care — nannies, senior caregivers, house managers — and a larger share of those arrangements are full-time, year-round, and high-paid enough to cross every wage threshold in Schedule H. The household-employer side is one of the most under-complied-with corners of US payroll law because the people who owe the tax are typically not professional employers and do not have payroll service vendors picking it up automatically.

Schedule H imposes three separate threshold tests, each triggering a different payroll-tax obligation. The dollar thresholds are set by the IRS and adjusted periodically; the 2026 amounts come directly from the Schedule H instructions and Publication 926.

1. Social Security and Medicare (FICA): If you paid any one household employee $2,800 or more in cash wages during 2026, you owe Social Security tax (6.2 percent employer + 6.2 percent withheld from the employee, or 12.4 percent total if you elected to pay the employee’s share) and Medicare tax (1.45 percent + 1.45 percent) on those wages. The $2,800 figure is the 2026 threshold; verify the exact amount in the current-year Publication 926 each January.
2. Federal Unemployment Tax (FUTA): If you paid total cash wages of $1,000 or more in any calendar quarter of 2025 or 2026 to all household employees combined, you owe FUTA at 6.0 percent (less the credit for state unemployment tax paid) on the first $7,000 of cash wages per employee.
3. Federal income tax withholding: Only required if the household employee asks you to withhold by giving you a completed Form W-4. There is no statutory obligation to withhold federal income tax from household-employee wages; it is at the employee’s election.

Publication 926 defines a household employee as a worker who performs services in or around the employer’s private home, where the employer controls what work is done and how. Common examples include nannies, in-home caregivers for elderly or disabled family members, housekeepers, gardeners on the home property, and house managers. A worker provided by an agency where the agency controls the work, screens the worker, and pays the worker is generally not your household employee — the agency is the employer in that case.

Independent contractors who control their own work (a plumber doing a one-day job, a landscaping company sending its own crew, a contractor running a multi-property cleaning business) are not household employees. The IRS uses the same common-law control test for household employees as for any other US employment relationship. Misclassifying a long-term, daily-presence nanny as an independent contractor on a Form 1099-NEC is one of the most common errors and generates back-tax assessments plus penalties when the worker eventually files for unemployment, files a workers’ comp claim, or asks the IRS to review the classification on Form SS-8.

Every state with State Unemployment Tax (SUTA) imposes it on household employers above a state-specific threshold, separate from federal FUTA. Some states — New York, California, Massachusetts, Washington — also impose paid family leave deductions, disability insurance, and workers’ compensation insurance requirements on household employers. California specifically requires household employers with $750 or more in any quarter to register with the Employment Development Department and pay state unemployment, employment training tax, state disability insurance, and personal income tax withholding (if the employee elects withholding).

The combined effect of federal Schedule H plus state-side obligations is that a typical household employer with a full-time nanny earning $60,000 to $90,000 a year is looking at total employer payroll tax cost of roughly 10 to 13 percent of wages, depending on the state. That is a meaningful budget item that most families discover after the fact.

Schedule H is filed annually with the household employer’s Form 1040 in April of the following year. However, the household employer is generally expected to pay the tax during the year, either by increasing personal estimated tax payments on Form 1040-ES or by increasing federal income tax withholding from the household employer’s own W-2 job. Waiting until April 15 and trying to settle a year of household payroll tax in one lump can trigger the estimated-tax underpayment penalty on Form 2210 even if Schedule H itself is filed on time.

The standard practical workflow looks like: (1) get an EIN if you don’t already have one; (2) verify the worker’s employment authorization on Form I-9 and keep the form in your records (do not file it); (3) collect Form W-4 if the employee wants federal income tax withholding; (4) register with the state unemployment agency; (5) pay wages each pay period and keep a payroll log of dates, hours, gross wages, withholdings; (6) issue Form W-2 to the employee by January 31 and file the W-2 and W-3 with the Social Security Administration; (7) file Schedule H with Form 1040.

Issuing a 1099 instead of a W-2. The single most common error. A full-time nanny is almost never an independent contractor under IRS common-law control rules. A 1099-NEC creates a misclassification position the family cannot defend if the worker challenges it later.

Forgetting state-side obligations. Schedule H covers federal only. State unemployment, state withholding (if elected), and state disability/family leave run on a separate calendar with separate forms.

Paying gross wages and forgetting employee FICA. If you do not withhold the employee’s 6.2 percent Social Security and 1.45 percent Medicare from each paycheck, you can elect to pay it from the employer’s funds, but you must then add that employer-paid FICA back into the employee’s W-2 box 1 as additional wages. Many household employers do not realize this is an option, much less how to report it.

Missing the FUTA quarterly-wage trigger. The FUTA test looks at any quarter where you paid $1,000+ in total household wages. A short summer-only au pair arrangement can still trigger full-year FUTA reporting if any one quarter crossed the threshold.

• IRS Publication 926: Household Employer's Tax Guide — primary federal authority.
• Schedule H (Form 1040): Household Employment Taxes — instructions and current-year thresholds.
• IRS Form W-2 instructions — for issuing year-end wage statements to household employees.
• IRS Form SS-8: Determination of Worker Status — for classification questions.
• USCIS Form I-9: Employment Eligibility Verification — required for every employee.
• IRS Publication 15 (Circular E) — federal withholding tables referenced if employee elects withholding.