Nanny Tax 2026 and 2027: The $3,000 and $3,100 Thresholds
Household employers owe Social Security and Medicare at $3,000 of cash wages in 2026 and $3,100 in 2027. FUTA, Schedule H and the W-2 deadline, worked through.
“Nanny tax” is the informal name for the employment taxes owed by people who hire someone to work in their home. The law treats you as an employer if you control what the worker does and how it is done, which is the usual case with a nanny, a housekeeper, a caregiver for a parent or a gardener who follows your instructions. The IRS’s own example in Publication 926 is a babysitter who works four days a week in your home, follows your instructions and uses your equipment. If the worker controls how the work is done, as with a cleaning company or a gardener with their own business, they are self-employed and the nanny tax does not apply.
The thresholds for 2026 and 2027
| 2026 | 2027 | |
|---|---|---|
| Cash wages to one household employee that trigger Social Security and Medicare | $3,000 | $3,100 |
| Social Security wage base | $184,500 | $192,300 |
| Social Security tax, employer and employee each | 6.2% | 6.2% |
| Medicare tax, employer and employee each | 1.45% | 1.45% |
| Quarterly cash wages to all household employees that trigger FUTA | $1,000 | $1,000 |
| FUTA wage base per employee | $7,000 | $7,000 |
| Form W-2 due to the employee and the SSA | February 1, 2027 | January 31, 2028 |
The $3,000 and $3,100 thresholds work as a cliff. If you pay one employee less than the threshold in cash during the year, none of the wages are Social Security or Medicare wages. At the threshold or above, all of the cash wages are, from the first dollar. Cash includes checks, money orders, gift cards and electronic payments. Food, lodging and other noncash items do not count toward the threshold and are not subject to Social Security and Medicare tax, though they may be taxable income for the employee.
The 2027 figure follows a formula: the 1995 base of $1,000 is indexed to the national average wage index and rounded down to the nearest $100. Our Social Security 2027 tracker projected $3,100 before the announcement and shows the calculation.
Wages that do not count
Publication 926 lists four groups whose wages do not count toward the threshold, even above $3,000 or $3,100, subject to the two exceptions noted:
- Your spouse.
- Your child under 21.
- Your parent, with one exception: the wages count if your child living with you is under 18, or needs at least four continuous weeks of personal care because of a physical or mental condition, and you are divorced and not remarried, widowed, or living with a spouse whose condition prevents them from caring for the child.
- An employee under 18 at any time during the year, unless household work is that person’s principal occupation. A student’s babysitting does not count as a principal occupation, so the neighbor’s 16-year-old is outside the nanny tax at any amount.
Unemployment tax has a shorter list: wages to your spouse, your child under 21 and your parent are not counted.
A full year with a nanny, worked through
A family pays a nanny $25 an hour for 30 hours a week, 50 weeks of 2026: $37,500 in cash wages. The nanny is unrelated and over 18, and the family lives in a state that is not a credit reduction state and pays its state unemployment contributions on time.
| Tax | Who bears it | 2026 amount |
|---|---|---|
| Social Security, 6.2% of $37,500 | Employer | $2,325.00 |
| Medicare, 1.45% of $37,500 | Employer | $543.75 |
| Social Security and Medicare, 7.65% of $37,500 | Employee (withheld from pay) | $2,868.75 |
| FUTA, 6% of the first $7,000 minus the 5.4% state credit | Employer | $42.00 |
| Total paid with Schedule H | $5,737.50 + $42.00 = $5,779.50 |
Of that, $2,910.75 is the family’s own cost; the other $2,868.75 came out of the nanny’s pay. State unemployment tax and any state disability or workers’ compensation insurance are separate, and vary by state.
Many families agree to pay the employee’s share themselves instead of withholding it. Publication 926 allows that, with a consequence: the $2,868.75 you pay on the nanny’s behalf must be added to the nanny’s wages in box 1 of Form W-2 for income tax purposes, although it is not counted as Social Security, Medicare or FUTA wages.
How you pay it: Schedule H, not quarterly payroll
A household employer does not file the quarterly Form 941 that businesses file. You figure the year’s taxes on Schedule H (Form 1040) and attach it to your 2026 return. The tax is added to your income tax, so it has to be covered during the year, or you can owe an underpayment penalty. Publication 926 suggests two ways:
- Increase your own withholding. Give your employer a new Form W-4 with an extra amount per paycheck, or a new Form W-4P for a pension.
- Make estimated tax payments each quarter.
You also need an employer identification number, which is different from your Social Security number, to file the employee’s Form W-2. For 2026 wages, Copy A of the W-2 and Form W-3 go to the Social Security Administration, and Copies B, C and 2 to the employee, by February 1, 2027, because January 31 falls on a Sunday.
Overtime, income tax withholding and the child care credit
Income tax withholding is optional. You withhold federal income tax only if the employee asks and you agree, based on the employee’s Form W-4.
Overtime. The no-tax-on-overtime deduction, up to $12,500 or $25,000 on a joint return, applies to the extra half of time-and-a-half pay required by the Fair Labor Standards Act. Publication 926 notes that the Act generally covers domestic service employees but exempts live-in domestic workers and those providing companionship services. If your employee is covered and works more than 40 hours in a week, the overtime premium goes on the W-2 under code TT in box 12; see the W-2 box 12 code list. Overtime pay is still subject to Social Security and Medicare.
The child care credit. Publication 503 says “the taxes you pay on wages for qualifying child and dependent care services are work-related expenses.” In the example above, the family’s $2,910.75 of employer taxes counts along with the wages toward the expense limit of the credit for child and dependent care expenses, which from 2026 can reach 50 percent of qualifying expenses at lower incomes; see Form 2441 for 2026. With $37,500 of wages, the family is far above the $3,000 limit for one child or $6,000 for two or more, so the taxes do not change the credit in this case. Payments from a dependent care FSA, now up to $7,500, reduce that limit dollar for dollar.
What to do now
- Add up the year’s cash wages per employee. At $3,000 or more for 2026, you owe Social Security and Medicare on all of it.
- Get an employer identification number if you don’t have one; you need it for the W-2.
- Cover the tax on time, through extra withholding before year-end or a fourth-quarter estimated payment by January 15, 2027.
- Prepare the W-2 and W-3 for February 1, 2027.
- Plan 2027 at $3,100, with the Social Security wage base at $192,300.
Sources
- Internal Revenue Service — Draft Publication 926 (2027), Household Employer’s Tax Guide, dated October 15, 2026: What’s New, Table 1, Wages not counted, Not withholding the employee’s share, Withholding on qualified overtime compensation
- Internal Revenue Service — Draft Instructions for Schedule H (Form 1040) (2026): What’s New ($3,000 test and $184,500 wage base), Forms W-2 and W-3 due February 1, 2027, credit reduction states
- Internal Revenue Service — Draft Publication 503 (2026), Taxes paid on wages
- Legal Information Institute, Cornell Law School — 26 U.S.C. 3121, subsections (a)(7)(B), (b)(3) and (x), the domestic service threshold and its indexing
Quick answers
What is the nanny tax threshold for 2026 and 2027?
For 2026, Social Security and Medicare taxes apply once you pay one household employee $3,000 or more in cash wages during the year, according to the draft 2026 Instructions for Schedule H. For 2027, the draft Publication 926 sets the threshold at $3,100. The figure is indexed to wage growth and rounded down to a multiple of $100.
When do I owe federal unemployment tax for a nanny?
When you pay total cash wages of $1,000 or more to household employees in any calendar quarter of the current or prior year. FUTA is 6 percent of the first $7,000 of each employee's wages, reduced by a credit of up to 5.4 percent for state unemployment contributions paid on time, so it is usually $42 per employee per year. The credit is smaller in a credit reduction state.
Do I have to withhold income tax from my nanny's pay?
No. Publication 926 says you are not required to withhold federal income tax from a household employee's wages; you withhold it only if the employee asks and you agree. Social Security and Medicare taxes are different: once wages reach the threshold, you owe both your share and the employee's share, which you either withhold or pay yourself.
Whose wages are exempt from the nanny tax?
Wages paid to your spouse, your child under 21, your parent (with an exception when you have a young or disabled child and are divorced, widowed or living with a disabled spouse), and an employee who is under 18 at any time during the year, unless household work is that employee's principal occupation. A student's babysitting does not count as a principal occupation.
When are Forms W-2 due for a 2026 household employee?
By February 1, 2027, because January 31, 2027, falls on a Sunday. The draft Schedule H instructions say to send Copy A with Form W-3 to the Social Security Administration and give Copies B, C and 2 to the employee by that date. For 2027 wages, the deadline is January 31, 2028.
Can I count nanny taxes toward the child care credit?
Yes. Publication 503 says the taxes you pay on wages for qualifying child and dependent care services are work-related expenses. They count, along with the wages, toward the expense limit of the child and dependent care credit, which from 2026 can be worth up to 50 percent of qualifying expenses for lower incomes.
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