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IRS Schedule H: Household Employment Taxes (The Nanny Tax)
Understand your obligations as a household employer, including Social Security, Medicare, and unemployment taxes for nannies, housekeepers.
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Understand your obligations as a household employer, including Social Security, Medicare, and unemployment taxes for nannies, housekeepers.
This guide is designed for first-pass understanding. Start with core terms, then apply the framework in your own account workflow.
Schedule H is the IRS form for household employment taxes; commonly known as the "nanny tax." If you pay a housekeeper, nanny, gardener, personal caretaker, or any other household worker more than the annual threshold ($2,700 in 2024), you are their employer and owe Social Security, Medicare, and potentially federal unemployment taxes on their wages. Despite affecting millions of households, Schedule H has one of the highest non-compliance rates in the entire tax system; estimated at over 90%.
Household employment taxes have been required since the Social Security Act of 1935 extended coverage to domestic workers. However, the obligation was widely ignored for decades, operating in a gray area where both employers and workers tacitly agreed to keep arrangements informal and off the books.
The issue exploded into public consciousness during the 1993 "Nannygate" scandals. President Clinton's first nominee for Attorney General, Zoe Baird, was forced to withdraw after it was revealed she hadn't paid Social Security taxes for her household employees. A second leading candidate, Kimba Wood, also withdrew from consideration; though in her case she had actually paid all required taxes; her issue involved employing an undocumented immigrant when doing so was still legal. The scandals prompted Congress to simplify household employment tax reporting, leading to the creation of Schedule H; a single form attached to the employer's personal tax return rather than requiring separate employer identification numbers and quarterly payroll filings.
The Social Security Domestic Employment Reform Act of 1994 raised the reporting threshold from $50 per quarter to $1,000 per year (adjusted for inflation over time to the current $2,700), switched from quarterly to annual reporting, and created Schedule H as the dedicated form. The intent was to make compliance easier and boost reporting rates.
Despite these simplifications, non-compliance remains endemic. The informal nature of many household employment arrangements, the relatively small amounts involved, and the perceived complexity of becoming an "employer" all contribute to widespread non-compliance. The IRS has limited enforcement resources for individual household employers, and workers themselves often prefer cash payments to avoid their own tax obligations.
You must file Schedule H if you paid any single household employee $2,700 or more in cash wages during the 2024 tax year. The threshold applies per employee, not in total; if you paid two workers $2,000 each, neither triggers the requirement.
You must file Schedule H if you paid any single household employee $2,700 or more in cash wages during 2024. Household employees include nannies, housekeepers, gardeners, personal caretakers, cooks, and drivers — anyone who works in or around your home whose work you control. Independent contractors (like a plumber you hire once) do not count.
Yes. As a household employer, you need an Employer Identification Number (EIN), which you can obtain for free by filing Form SS-4 online at IRS.gov. You'll use this EIN on Schedule H, the W-2 you issue to your employee, and any state employment tax filings.
You owe the employer share of Social Security tax (6.2%) and Medicare tax (1.45%) on your employee's wages. You may also owe Federal Unemployment Tax (FUTA) at 6% on the first $7,000 of wages, though credits for state unemployment taxes usually reduce this to 0.6%. You must also withhold the employee's share of Social Security and Medicare, and federal income tax if the employee requests it.
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A "household employee" is someone who performs work in or around your home and whose work you control. Key examples include:
Workers who are not household employees include independent contractors (workers who control how the work is done, like a self-employed house cleaning service), workers under age 18 (unless household work is their principal occupation), and your spouse, children under 21, or parents (with exceptions for parents only if certain conditions are met).
Schedule H is filed with your Form 1040 by April 15. If you have no other reason to file a tax return but owe household employment taxes, you must still file Form 1040 with Schedule H attached. You may also need to obtain an Employer Identification Number (EIN) and provide your employee with a W-2 by January 31.
The core taxes calculated in Part I:
The employer and employee each owe their share. You can either withhold the employee's portion from their wages or pay both shares yourself (which makes the employer's share a taxable benefit to the employee).
You owe FUTA tax if you paid household employees total cash wages of $1,000 or more in any calendar quarter. The FUTA rate is 6.0% on the first $7,000 of each employee's wages, but you receive a credit of up to 5.4% for state unemployment taxes paid; making the effective federal rate 0.6% (or $42 per employee maximum).
This section combines the Social Security, Medicare, and FUTA taxes into a total that flows to your Form 1040. This amount is added to your income tax and can be offset by estimated tax payments you made during the year.
Provides EIN information for household employers. If you don't have an EIN, you can apply for one on the IRS website; it's issued immediately for online applications.
This article is educational and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.