If you pay a household employee - a nanny, housekeeper, home health aide, or other domestic worker - cash wages of $2,800 or more in 2026, you are an employer for federal tax purposes. You owe FICA taxes on those wages, federal unemployment tax, and potentially state unemployment tax. You must provide a W-2. Most households in this situation either do not know these rules exist or incorrectly issue a Form 1099 to avoid the complexity. Both approaches create liability. The "nanny tax" applies to you, and understanding it before year-end saves significant trouble.
Cash wage threshold: $2,800 paid to any one household employee in 2026 (indexed annually). Below this threshold: no FICA obligation, no W-2 required for that worker.
FUTA threshold: $1,000 paid to household employees in any calendar quarter of 2025 or 2026 triggers federal unemployment tax (FUTA) obligation for all of 2026.
FICA rate: You pay 7.65% employer share (6.2% SS + 1.45% Medicare) on wages up to the SS wage base. You withhold 7.65% from the employee's wages - or you can choose to pay both halves yourself as a benefit to the employee (the employee portion you cover is itself wages subject to FICA).
A household employee is someone you hire to do work in or around your home where you control not just the work done but how it is done. The key test is control: do you set the hours, provide the tools, tell the worker specifically how to perform the work? If yes, the worker is your employee - regardless of what you call them or whether you intended to hire an employee. Nannies, au pairs, babysitters who work regularly, housekeepers, gardeners, private chefs, and home health aides who work for a single family are virtually always employees under this standard.
Household employers do not file a separate payroll tax return (Form 941). Instead, household employment taxes are reported on Schedule H, which is attached to the employer's Form 1040 each year. Schedule H calculates: (1) Social Security and Medicare taxes on cash wages paid, (2) any federal income tax withheld at the employee's request, and (3) federal unemployment (FUTA) tax. The total tax due on Schedule H is added to the household employer's 1040 tax liability and included in their estimated tax and final payment obligations.
This integration means the household employer needs to incorporate the FICA obligation into their quarterly estimated tax payments - if you have $30,000 in Schedule H liability and do not adjust your estimated payments, you will face an underpayment penalty regardless of withholding at your day job.
Most states require household employers to register for and pay state unemployment insurance (SUI) separately from the federal FUTA obligation. State requirements vary - California, New York, and Illinois are the most demanding. California requires registration within the quarter in which the household employee first earns $750 in a calendar quarter. New York requires registration when the household employee's wages reach $500 in any calendar quarter. These state registrations involve separate accounts with state unemployment agencies, separate quarterly filings, and state employer identification numbers distinct from federal EIN. A household employer who is meticulous about Schedule H but ignores state SUI is still non-compliant in most states.