Household Employee Rules and 2025 Tax Thresholds for Nannies

Households across the United States face higher payroll triggers for domestic help in 2025, as the IRS raises the cash wage threshold that activates Social Security and Medicare taxes for a household employee. The change affects families who hire nannies, caregivers, cleaners, drivers, and other in‑home workers. These rules—often called the Nanny Tax—apply when the hiring family controls what work is done and how it is done; if the worker controls how the job is done, they are treated as self‑employed.

The IRS says the new threshold is $2,800 in cash wages to any one worker in 2025—up from $2,700 in 2024—after which the employer must handle FICA taxes. The Social Security wage base also rises to $176,100 in 2025, meaning wages up to that amount are subject to the 6.2% Social Security portion. The Medicare portion of 1.45% has no wage cap, and the 0.9% Additional Medicare Tax must be withheld on Medicare wages above $200,000 in a calendar year.

Why this matters

This update affects millions of households that rely on in‑home help to raise children, care for aging parents, or keep a home running while parents work. It also matters for workers—many of whom are immigrants—because proper payroll reporting ensures they receive Social Security and Medicare credits.

According to analysis by VisaVerge.com, compliance around the Nanny Tax remains spotty. Common reasons include uncertainty about where employment ends and self‑employment begins, or assuming paying cash “off the books” is simpler. The IRS keeps pressing for compliance, noting that correct reporting protects both the worker and the family from future tax and legal problems.

Who counts as a household employee?

A worker is your household employee if you direct both the work and how the worker performs the job. This typically includes:

• Nannies, babysitters, cleaning people, cooks, domestic workers, private nurses, yard workers, drivers, and butlers.

Some roles are not household work even if done in your home, such as a private secretary, librarian, or tutor. Key distinctions:

• If a caregiver or babysitter works in their own home (not yours), they are generally not your employee.
• If an agency provides the worker and controls what the worker does and how it is done, the worker is not your employee.
• Family members are mostly excluded for tax purposes: your spouse, your child under 21, and your parents (with narrow exceptions). Also, anyone under 18 whose main occupation is not household work is generally excluded.

Payroll thresholds and rates for 2025

• Cash wage trigger to start FICA: $2,800 per worker in 2025 (up from $2,700 in 2024).
• Social Security wage base: $176,100 in 2025 (up from $168,600).
• Social Security tax rate (employee + employer): 6.2% each (subject to the wage base).
• Medicare tax rate: 1.45% each (no wage cap).
• Additional Medicare Tax: 0.9% withheld on wages above $200,000.
• Employer share of Social Security and Medicare: 7.65%. Employee share: 7.65%.
• Combined Social Security + Medicare (total payroll tax): 15.3% if self‑employment applies.

You can either withhold the employee’s share from each paycheck or pay the employee’s share yourself. If you pay the employee’s share for them, that amount counts as wages for income tax purposes but not for Social Security, Medicare, or unemployment tax calculations. Federal income tax withholding is optional—do it only if the employee requests and you agree; then collect a Form W-4 from them. The IRS provides the form at About Form W-4.

FUTA (Federal Unemployment Tax) basics

• FUTA is owed if you pay $1,000 or more in total cash wages to all household employees in any calendar quarter of 2024 or 2025.
• FUTA applies to the first $7,000 of wages paid to each employee at a gross rate of 6%.
• Most employers pay state unemployment tax (SUTA) and may receive a credit of up to 5.4% against FUTA, reducing the FUTA rate to 0.6% with the full credit.
• Only employers pay FUTA and SUTA; these taxes are not withheld from workers’ pay.
• State wage bases and rates vary—check your state’s rules for SUTA.

Reporting and forms (federal)

Even though the Nanny Tax is federal, the paperwork flows through your personal tax filing:

• File Schedule H (Form 1040) with your personal return if wages were subject to Social Security/Medicare or FUTA, or if you withheld federal income tax.
• Obtain an Employer Identification Number (EIN) and give each employee a Form W‑2 by January 31 after the tax year.
  • If you paid an employee $2,800 or more in 2025, or you withheld taxes, you must issue a W‑2.
• File Form W‑3 with the Social Security Administration by January 31, checking the “Hshld. emp.” box.

Official pages: About Schedule H (Form 1040), About Form W-2, About Form W-3.

I‑9 and work authorization

• Complete Form I‑9 for each worker on or before the first day of work to verify the person can work in the United States. See: Form I‑9, Employment Eligibility Verification.
• While Form I‑9 is not a tax form, failing to complete it can create serious legal trouble for families and workers alike.
• For many immigrant workers, a proper I‑9 plus correct payroll records can mean the difference between stable work and sudden loss of income.

What changed for 2025 (quick summary)

1. Social Security wage base rises to $176,100 (from $168,600).
2. Cash wage trigger for FICA for domestic help rises to $2,800 (from $2,700).

No changes were made to who counts as an employee or self‑employed in the home care setting—existing control tests still apply.

Practical compliance steps (step‑by‑step)

1. Decide whether the worker is a household employee or self‑employed.
2. Check the place of work (your home vs. worker’s home) and whether an agency controls the worker.
3. Get paperwork in place:
   • Complete Form I-9 on or before the first day.
   • Apply for an EIN using Form SS‑4: About Form SS‑4.
   • If withholding federal income tax, have the worker fill out Form W‑4.
4. Track cash wages. Once you pay one worker $2,800 in 2025, calculate both shares of Social Security and Medicare (15.3% total; 7.65% employer share).
5. Watch the FUTA trigger: pay $1,000 or more in any quarter → FUTA may apply for that year.
6. Meet deadlines: give each employee a Form W‑2 by January 31 and file Form W‑3 with the SSA by the same date. File Schedule H with your return.
7. Keep records: time sheets, pay records, tax calculations, W‑4s, I‑9s, and copies of W‑2/W‑3.

Edge cases and examples

• The Saturday babysitter: A 17‑year‑old neighbor who babysits twice a month and earns well under the threshold, and whose main activity is being a student, likely does not trigger Social Security/Medicare.
• The live‑in caregiver: Full‑time, following your schedule and methods → normally a household employee. Once wages reach $2,800, FICA applies.
• The agency nurse: If an agency hires and directs the nurse, the nurse is not your employee; you pay the agency.
• The out‑of‑home nanny: If care is provided in the caregiver’s home, they are generally not your household employee (unless you run a child‑care business, which is different).

Practical benefits of compliance

• Proper payroll helps workers earn credits for Social Security retirement and disability benefits, supports rental and loan applications, and can be evidence for immigration-related benefits.
• Reporting through Schedule H is designed for households and fits into your normal tax filing.
• Failure to report can lead to penalties and leave workers without important benefit records.

Classification: the key test is control

If you direct not just the result but the method—what to do, when to do it, what tools to use, and how to do it—then you have an employee and must follow the Nanny Tax rules.

If the worker sets the method, brings their own tools, can hire a helper, and takes the risk of profit or loss, that points to self‑employed status. When in doubt, treat the worker as an employee to protect the worker’s credits and reduce the risk of back taxes.

State rules and additional requirements

• Most states require unemployment contributions (SUTA) and many require workers’ compensation insurance.
• State unemployment wage bases may differ from the federal $7,000.
• Register with your state where required to claim the FUTA credit (up to 5.4%), lowering FUTA to 0.6%.

Helpful IRS pages and forms

• Schedule H (Form 1040): About Schedule H (Form 1040)
• Forms W‑2 and W‑3: About Form W-2, About Form W-3
• Form W‑4 (withholding): About Form W-4
• Form SS‑4 (EIN): About Form SS‑4
• Form I‑9: Form I‑9, Employment Eligibility Verification
• Forms 940 and 941 (for employers who combine household and business payroll): About Form 940, About Form 941
• Household Employer’s Tax Guide: IRS Publication 926 (Household Employer’s Tax Guide)

Important deadlines and amounts to remember:
– Cash wage trigger for FICA in 2025: $2,800
– Social Security wage base in 2025: $176,100
– FUTA quarter trigger: $1,000 in any quarter
– FUTA taxable wage base per employee: $7,000
– W‑2 and W‑3 deadline: January 31 after the tax year
– Additional Medicare Tax withholding at employer level: $200,000

Final checklist for household employers (quick)

• Confirm whether the worker is an employee or self‑employed.
• Complete Form I‑9 before work begins.
• Apply for an EIN (Form SS‑4) if you don’t have one.
• Track wages and apply the $2,800 cash threshold for FICA.
• Monitor quarterly wages for the $1,000 FUTA trigger.
• Issue W‑2s and file W‑3 by January 31.
• File Schedule H with your Form 1040 by the tax due date.
• Keep detailed payroll records.

For clarity and full instructions, consult IRS Publication 926 (Household Employer’s Tax Guide) or ask a tax professional to set up your first few pay cycles and year‑end forms. The modest 2025 adjustments are mainly inflation updates; the core rules and protections remain in place to protect both families and workers.