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:
Social Security & Medicare (FICA): 7.65% withheld from the employee’s wages, plus 7.65% paid by the employer.
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.
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.
Starting in 2025, the One Big Beautiful Bill Act (OBBBA) introduces new requirements for household employers. Specifically, there is an overtime deduction for household employees, which creates reporting obligations for employers on Form W-2. Employers must now track and report the "premium" portion of FLSA-qualifying overtime, starting in 2025. This change increases the complexity of household employment taxes and underscores the importance of accurate payroll tracking.
A household employee is anyone you hire where you control what work is performed and how it is carried out.
Common examples include:
Nannies and babysitters (regular, not casual sitters)
Housekeepers and maids
Yard workers and gardeners (if you direct their work)
Caregivers, nurses, health aides, and personal attendants
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:
A spouse,
Your own child under the age of 21, and
Your parent (with limited exceptions).
Many families prefer outsourcing payroll to a specialized household payroll provider. While Beaird Harris does not process household employee payroll directly, we often recommend partnering with a payroll provider that focuses on household employee payroll. These providers handle:
IRS and state registrations.
Wage calculations and tax withholdings.
Direct deposit or check payments.
Quarterly and annual form filing, including W-2 issuance.
At $40–$70 per month on average, this option simplifies compliance and reduces risk.
Household employers who prefer to manage payroll themselves must:
Verify work eligibility with Form I-9.
Obtain a Household Employer EIN.
Register with the state for unemployment tax.
Calculate and remit employment taxes, including both employee and employer portions.
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.
While household employee wages are generally not deductible as a business expense, two key tax benefits may help families offset the cost of care.
2025: Families may contribute up to $5,000 annually, pre-tax, to a Dependent Care FSA to cover eligible expenses such as wages paid to a nanny or other household employee.
2026 (Under OBBBA): The annual contribution cap increases to $7,500, expanding the benefit for families with qualifying dependents.
2025: Families can claim a nonrefundable credit of up to $3,000 for one dependent or $6,000 for two or more dependents.
The credit percentage ranges from 20% to 35%, but high-income households typically qualify only for the 20% rate due to income thresholds.
2026 (Under OBBBA): The maximum credit percentage increases to 50%, and income phaseout thresholds will adjust upward, allowing more families—especially middle- and high-income earners—to access larger credits.
In rare situations, if a household employee performs legitimate business duties—such as administrative support for a family-owned business—a portion of their wages may be deductible as a business expense. Proper documentation and a separate employment agreement are required.
Avoiding Household Employee Taxes can have serious consequences, including:
Liability for unpaid taxes, penalties, and interest.
Violations of employment law.
Potential damage to professional standing or future opportunities.
Voluntary compliance ensures both financial and legal protection.
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.