What Is the Household Employee Tax?
The Household Employee Tax applies when you pay a worker more than $2,800 in 2025 (increasing to $2,900 in 2026). At that threshold, the IRS requires household employers to withhold and pay employment taxes.
The key tax obligations include:
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Social Security & Medicare (FICA): 7.65% withheld from the employee’s wages, plus 7.65% paid by the employer.
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Federal Unemployment Tax (FUTA): Required if $1,000 or more in wages are paid in any calendar quarter. FUTA is 6% on the first $7,000 in wages, often reduced to 0.6% with state credits.
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State Unemployment Insurance (SUI): Rules vary by state, but most require registration and quarterly reporting.
Federal and state income tax withholding is optional but frequently requested by household employees.
Who Qualifies as a Household Employee?
A household employee is anyone you hire where you control what work is performed and how it is carried out.
Common examples include:
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Nannies and babysitters (regular, not casual sitters)
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Housekeepers and maids
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Yard workers and gardeners (if you direct their work)
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Caregivers, nurses, health aides, and personal attendants
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Drivers or personal assistants
Independent contractors—those who determine how they do their work or are provided by an agency that manages payroll—do not qualify as household employees.
Certain family members are also excluded, including:
Payroll Options for Household Employers
Payroll Service Providers
Many families prefer outsourcing payroll to a specialized household payroll provider. While Beaird Harris does not process household employee payroll directly, we often refer clients to services such as Care.com HomePay. These providers handle:
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IRS and state registrations.
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Wage calculations and tax withholdings.
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Direct deposit or check payments.
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Quarterly and annual form filing, including W-2 issuance.
At $40–$70 per month on average, this option simplifies compliance and reduces risk.
Do-It-Yourself Payroll
Household employers who prefer to manage payroll themselves must:
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Verify work eligibility with Form I-9.
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Obtain a Household Employer EIN.
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Register with the state for unemployment tax.
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Calculate and remit employment taxes, including both employee and employer portions.
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Provide Form W-2 to the employee and file Schedule H (Form 1040) with the employer’s individual tax return.
Employers must retain payroll and employment records for at least four years.
Tax Benefits for Families
While household employee wages are generally not deductible as a business expense, certain tax benefits may apply:
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Dependent Care Flexible Spending Account (FSA): Up to $5,000 annually per family may be contributed pre-tax to cover eligible expenses, including household employee wages.
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Child and Dependent Care Tax Credit: Families may claim a nonrefundable credit of up to $3,000 for one dependent, or $6,000 for two or more. High-income households typically qualify only for the 20% rate due to income thresholds.
In rare cases, if a household employee performs legitimate business duties—such as administrative work for a family business—a portion of wages may be deductible as a business expense. Documentation and separate agreements are required in these situations.
Why Compliance Matters
Avoiding Household Employee Taxes can have serious consequences, including:
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Liability for unpaid taxes, penalties, and interest.
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Violations of employment law.
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Potential damage to professional standing or future opportunities.
Voluntary compliance ensures both financial and legal protection.
Conclusion
Hiring a household employee can provide invaluable support for busy professionals and families. But it also creates the responsibility of being an employer. Whether you manage payroll yourself or outsource to a service, understanding and complying with the Household Employee Tax requirements is critical.
At Beaird Harris, our CPAs frequently advise families on the tax implications of employing household workers. While we do not process household employee payroll directly, we connect clients with trusted payroll service providers and ensure their tax filings are accurate.
If you employ a household worker, now is the time to confirm your compliance. Our team is here to help you navigate the rules with clarity and confidence.
Carla Medrano
