Reference
Nanny Tax Glossary
Plain-English definitions of every term you'll encounter as a household employer — from FICA to Form I-9.
01 · 6 terms
Federal Taxes
What the IRS requires of every household employer.
- Schedule H
- Schedule H is an IRS form that household employers attach to their personal Form 1040 each year to report and pay federal payroll taxes — Social Security, Medicare, FUTA, and withheld federal income tax — owed on wages paid to household employees. ↗
- FICA (Social Security + Medicare)
- FICA stands for the Federal Insurance Contributions Act. It requires both the employer and employee to each contribute 6.2% of wages toward Social Security (up to the annual wage base) and 1.45% toward Medicare, for a combined employer-plus-employee rate of 15.3%. ↗
- FUTA (Federal Unemployment Tax Act)
- FUTA is a federal tax paid solely by the employer at 6% on the first $7,000 of each employee's annual wages. Most employers qualify for a 5.4% credit when state unemployment taxes are paid on time, reducing the effective rate to 0.6%. ↗
- EIN (Employer Identification Number)
- An EIN is a nine-digit federal tax ID number assigned to an employer by the IRS. Household employers must obtain an EIN before remitting payroll taxes or filing Schedule H — they cannot use their Social Security number on employment tax forms. Apply for free at IRS.gov. ↗
- EFTPS (Electronic Federal Tax Payment System)
- EFTPS is a free U.S. Treasury service that lets employers submit federal tax deposits online or by phone. Household employers who make mid-year deposits of Social Security, Medicare, and withheld income taxes must use EFTPS rather than mailing a check. ↗
- Nanny tax threshold
- For 2026, household employers must withhold and pay FICA taxes on cash wages of $3,000 or more paid to any single employee during the calendar year. FUTA applies if total wages paid to all household employees exceed $1,000 in any calendar quarter. Below these thresholds, no federal payroll taxes are owed. ↗
02 · 4 terms
State Programs
Unemployment, disability, leave, and reporting at the state level.
- SUI (State Unemployment Insurance)
- SUI is the state-level counterpart to FUTA. Household employers register with their state workforce agency and pay a percentage of each employee's wages into the state unemployment fund. Rates and wage bases vary by state and the employer's claims history. ↗
- SDI (State Disability Insurance)
- SDI is a state-administered short-term disability program that replaces a portion of an employee's income when they cannot work due to a non-work-related illness, injury, or pregnancy. Some states — such as California, New York, and New Jersey — require household employers to participate. ↗
- PFML (Paid Family & Medical Leave)
- PFML programs provide paid leave for employees to bond with a new child, care for a seriously ill family member, or manage their own serious health condition. A growing number of states require household employers and employees to contribute to state PFML funds through payroll withholding. ↗
- New hire reporting
- Federal law requires employers to report each newly hired employee to their state's designated agency within 20 days of the hire date. States use this data to enforce child-support orders and detect unemployment insurance fraud. Household employers who pay through payroll are subject to this requirement. ↗
03 · 4 terms
Forms & IDs
The paperwork you'll touch — W-2 through I-9.
- Form W-2
- Form W-2 is the Wage and Tax Statement that employers provide to each employee (and the IRS) by January 31 each year. It reports total wages paid and taxes withheld for the prior year. Household employers must issue a W-2 to any worker who earned $3,000 or more during the year (2026 threshold). ↗
- Form W-3
- Form W-3 is the transmittal form that accompanies Copy A of all W-2s sent to the Social Security Administration. It summarizes the total wages and taxes reported across all employee W-2s. Most household employers file a single W-2, so the W-3 is a one-line summary. ↗
- Form W-4
- Form W-4 (Employee's Withholding Certificate) tells the employer how much federal income tax to withhold from each paycheck. Employees complete a W-4 at hire and can update it any time. Federal income tax withholding is optional for household employees but must be honored if the employee requests it. ↗
- Form I-9
- Form I-9 (Employment Eligibility Verification) is required by the Department of Homeland Security for all new hires in the U.S. Household employers must have each employee complete Section 1 on their first day and review identity and work-authorization documents within three business days. ↗
04 · 6 terms
People & Pay
Who counts as a household employee, and how pay is computed.
- Household employee
- A household employee is someone hired to perform domestic work in or around a private home — such as a nanny, housekeeper, caregiver, or gardener — where the employer controls both what work is done and how it is done. The IRS uses this definition to determine who must pay nanny taxes. ↗
- Common-law employee vs independent contractor
- The IRS uses a behavioral-control and financial-control test to distinguish employees from independent contractors. Household workers are almost always common-law employees — not independent contractors — because the employer sets the schedule, provides tools, and directs the work. Misclassifying a nanny as an independent contractor to avoid payroll taxes is a common and auditable mistake. ↗
- Gross pay vs net pay
- Gross pay is the total amount agreed upon before any deductions — the nanny's full wage. Net pay (take-home pay) is what the employee actually receives after subtracting the employee's share of FICA taxes, any withheld state or federal income tax, and other deductions such as SDI or PFML contributions. ↗
- Withholding
- Withholding is the portion of an employee's wages that the employer holds back each pay period and remits to a tax authority on the employee's behalf. For household workers, withholding typically covers the employee's share of Social Security and Medicare taxes (FICA) and, if the employee requests it on Form W-4, federal and state income tax. ↗
- Qualified domestic worker
- A qualified domestic worker is an employee who performs services of a household nature in or around a private residence — such as childcare, elder care, cooking, cleaning, or driving. This IRS classification determines which workers are covered by household employer tax rules under Publication 926. ↗
- Year-end summary
- A year-end summary is a payroll document that consolidates all wages paid, taxes withheld, and employer taxes owed for a household employee over the full calendar year. It serves as the source data for preparing W-2s, Schedule H, and any state annual reconciliation forms, and is the primary year-end deliverable for household employers. ↗
Thresholds and rates reflect 2026 IRS guidance. See state guides for state-specific amounts, or compare CareTax with HomePay, Poppins Payroll, and SurePayroll.