Nanny and Household Employer Payroll (Schedule H)
If you pay someone to work in your home, you are an employer. It is more manageable than it sounds — one annual form rather than quarterly returns — but it is not optional, and a 1099 is not the shortcut it appears to be.
What this service covers
Hiring a nanny, a senior caregiver or a housekeeper makes you a household employer, and the obligations that come with it are modest but real. The good news is that this is genuinely lighter than business payroll: there are no quarterly Form 941s, the tax is reported once a year on Schedule H attached to your own Form 1040, and you are not even required to withhold federal income tax unless your employee asks you to. The bad news is that the one shortcut everyone reaches for — treating the person as an independent contractor and issuing a 1099 — is almost always wrong, and it is the version of this that produces assessments years later, usually when the employee files for unemployment and the state finds no record of the job. EvoTax sets up the household employer registrations, runs the pay and the withholding, prepares the W-2 and the Schedule H, and keeps the state unemployment side current. Paying properly also has an upside people overlook: the Child and Dependent Care Credit and a dependent care FSA both require your provider's taxpayer identification number, so legal payment is what makes those claimable at all.
Your nanny is an employee, and a 1099 does not change that
This is the decision everything else follows from, and it is not genuinely a decision — it is a conclusion the facts reach for you.
Employment turns on control: whether you decide when the person works, where they work, what they do and how they do it. For someone caring for your child in your home, on your schedule, to your instructions, the answer is yes on every count. It does not matter that the arrangement is informal, that the hours are part-time, that you both prefer a 1099, or that a written agreement calls them a contractor. A worker is classified by the substance of the relationship, not by the paperwork wrapped around it.
A genuinely self-employed provider does exist in this area — someone running a daycare from their own premises, setting their own rates and serving several families, is in business for themselves. The distinguishing feature is their independence, not the type of work.
The reason this matters more than it seems is how it surfaces. Almost nobody is caught by an audit of their own return. What happens is that the employment ends, the former employee files for unemployment benefit, and the state finds no record of the wages — at which point the employment is established retrospectively and the back tax, interest and penalties run from the beginning. The same thing happens when a caregiver needs evidence of income for a loan or an immigration filing and has none to produce.
If you have already been paying someone cash or on a 1099 for some time, that is worth addressing deliberately rather than quietly switching to a W-2 this year and hoping the earlier period is not noticed. Come to us before you change anything.
What you actually file, and how it differs from business payroll
Household employment has its own machinery, and the most common source of confusion is advice written for businesses being applied to it.
| Obligation | Household employer | Business employer |
|---|---|---|
| Employer identification number | Required — you cannot report under your SSN alone | Required |
| Quarterly federal return | None | Form 941 every quarter |
| Annual federal reporting | Schedule H, attached to your own Form 1040 | Form 940, plus the quarterly 941s |
| Social Security and Medicare | Both halves due once the annual wage threshold is met | Both halves due from the first dollar |
| Federal income tax withholding | Optional — only if the employee asks and you agree | Mandatory |
| Form W-2 | Required, to the employee and the SSA | Required |
| State unemployment insurance | Generally required, registered per state | Required |
The optional-withholding point is the one that surprises people most, and it is worth handling deliberately rather than just skipping. You are not obliged to withhold federal income tax from a household employee, but if you do not, your employee owes that tax themselves at the end of the year and may have no realistic way to pay it. Agreeing to withhold is usually the kinder arrangement and it costs you nothing beyond the administration.
Because Schedule H attaches to your personal return, the household employment tax becomes part of your own annual liability. That has a practical consequence: it is generally covered through your own estimated tax payments or increased withholding at your job during the year, rather than deposited separately as a business would. Getting that wrong produces an underpayment penalty on your personal return rather than a payroll notice.
When it applies, and the family members it does not apply to
Not every payment to someone working in your home triggers the full set of obligations. Two things decide it: how much you pay, and who the person is.
On amount, Social Security and Medicare become due once cash wages to an individual employee reach an annual threshold that the IRS adjusts each year, so it needs checking against the current figure rather than remembered. Federal unemployment tax works on a different and fixed test: it applies where you pay total cash wages of $1,000 or more in any calendar quarter, in the current or the preceding year. The two tests are independent, so it is entirely possible to owe one and not the other.
On who, a set of relationship exemptions applies that has no equivalent in business payroll.
- Your spouse — not a household employee for these purposes.
- Your child under the age of 21.
- Your parent, exempt in most circumstances, with narrow exceptions that turn on the care being provided and your household circumstances.
- Anyone under 18, unless household work is their principal occupation — so a student babysitting is generally outside this.
Two cautions on the exemptions. They remove specific federal taxes rather than switching off the relationship entirely, and the state position can differ from the federal one, so an arrangement that is exempt federally may still need registering for state unemployment insurance. And several states add requirements of their own that the federal rules say nothing about — workers' compensation coverage for household employees being the significant one, mandatory in some states and not others. It has to be checked where you live.
The thresholds are deliberately not printed here as figures. The Social Security and Medicare one is indexed annually, and a number that ages badly on a page is worse than no number — we check the current figure against your actual wages.
Paying legally is what makes the childcare tax breaks claimable
This is the part of the argument that changes people's minds, because it turns compliance from a cost into a partial rebate.
Both of the significant federal reliefs for childcare require you to identify who you paid. The Child and Dependent Care Credit requires the provider's name, address and taxpayer identification number on your return. A dependent care flexible spending account through your employer requires substantiation of the same kind. Neither is available for payments you cannot document to an identifiable provider.
So the comparison is not "pay properly and incur employment tax" against "pay cash and incur nothing". It is employment tax on one side against employment tax minus the value of a credit or an FSA exclusion on the other — and for many families with one child in care, and most with two, the relief recovers a meaningful part of the cost. Where a dependent care FSA is available through work, the saving comes off pre-tax income, which is usually the more valuable of the two routes.
The other benefit is one people value only in retrospect: your employee builds a Social Security and Medicare earnings record, and has documented income for a lease, a loan or an immigration application. For a caregiver on a work visa, an employment record that exists is not a minor consideration.
Where this comes from
- IRS Publication 926 — Household Employer's Tax Guide, the primary reference for everything on this page
- IRS — About Schedule H (Form 1040), Household Employment Taxes
- IRS — Hiring household employees: who counts as one and who does not
- IRS — Independent contractor or employee: the control tests that decide classification
- IRS — Child and Dependent Care Credit, including the provider identification requirement
Benefits & What You Get
Set up once, properly
We obtain the household employer EIN and complete the state withholding and unemployment registrations your state requires.
Pay runs and payslips handled
We calculate the pay, the Social Security and Medicare, and any income tax you have agreed to withhold, and produce a payslip each time.
Schedule H prepared with your return
Household employment tax is reported on your own Form 1040, so we prepare both together rather than handing you a form to attach.
W-2 issued on time
Your employee gets a W-2 by the January deadline and the copy is filed with the Social Security Administration.
The childcare relief claimed
We make sure the Child and Dependent Care Credit or your dependent care FSA is actually claimed, which is what offsets the cost.
How It Works
Confirm the position
We establish whether the person is a household employee, whether an exemption applies, and which thresholds you will cross.
Register
We obtain your household employer EIN and complete the state registrations, including unemployment insurance.
Run the pay
We process each pay period, calculate the tax and produce payslips, and tell you what to set aside.
Close the year
We issue the W-2, file with the SSA, and prepare Schedule H alongside your Form 1040.
Pricing
One employee — pay runs, withholding, payslips, W-2 and Schedule H
Final pricing depends on the complexity of your case. Contact us for an exact quote.
Frequently Asked Questions
Can I just pay my nanny on a 1099?
Almost certainly not, and this is the most consequential question on the page. Someone caring for your child in your home, on your schedule and to your instructions is an employee, because employment turns on control over how and when the work is done. A 1099 does not change the classification; it simply misreports it. The exception is a genuinely independent provider — someone running a daycare from their own premises, setting their own rates and serving several families — because their independence is real. Misclassification usually surfaces when the employment ends and the employee claims unemployment benefit, at which point the back tax, interest and penalties run from the start of the arrangement.
Do I really have to do all this for a part-time nanny?
It depends on what you pay rather than on how many hours. Social Security and Medicare become due once cash wages to one employee reach an annual threshold the IRS adjusts each year, and federal unemployment tax applies separately where you pay $1,000 or more in cash wages in any calendar quarter. Genuinely occasional babysitting by someone under 18 is generally outside all of it. Between those two points there is a real range where the obligations apply to arrangements people think of as casual, which is why it is worth checking against the current figures rather than assuming.
What is Schedule H and when do I file it?
Schedule H is the annual return for household employment tax, and it is attached to your own Form 1040 rather than filed separately. That is the main structural difference from business payroll: there are no quarterly Form 941s and no separate deposit schedule to keep. Because it forms part of your personal liability, the tax is normally covered through your own estimated payments or by increasing withholding at your job during the year, rather than deposited as a business would — and getting that wrong produces an underpayment penalty on your return rather than a payroll notice.
Do I have to withhold income tax from my nanny's pay?
No, and this is the one genuinely optional piece. Federal income tax withholding from a household employee is only done if your employee asks you to and you agree. Social Security and Medicare are different — those are required once the wage threshold is met, and you owe both the employer and the employee halves. In practice agreeing to withhold income tax is usually the better arrangement for everyone, because otherwise your employee carries the whole liability to the end of the year and may have no straightforward way to pay it.
My mother helps with the children. Do these rules apply?
Usually not, because a parent is exempt from household employment tax in most circumstances — though there are narrow exceptions that turn on the care being provided and your household situation. Your spouse and your own children under 21 are similarly exempt. Two cautions: the exemptions remove specific federal taxes rather than switching the relationship off entirely, and the state position can differ, so something exempt federally may still need registering for state unemployment insurance. Worth confirming for your specific facts rather than assuming either way.
Does paying properly actually cost me money overall?
Less than the headline suggests, and sometimes nothing. Paying legally is what makes the Child and Dependent Care Credit and a dependent care FSA claimable, because both require your provider's name, address and taxpayer identification number — neither is available for undocumented cash payments. So the real comparison is employment tax on one side against employment tax minus the value of that relief on the other. For many families with one child in care, and most with two, a meaningful part of the cost comes back. Where an FSA is available through your employer, that route is usually worth more because the saving comes off pre-tax income.
My spouse is on an H-4. Can I employ someone, or can they work for another family?
Two separate questions, and only the first is about you. Employing someone in your home has no effect on your own visa status — as a household employer you are simply a person who pays wages. Whether a particular individual may be employed is an entirely separate matter: H-4 status alone does not authorise work, and an employment authorisation document is required. The same applies to a relative visiting on a visitor visa to help with a new baby, who is not authorised to work regardless of how the arrangement is described. We will tell you plainly where something looks like a problem, but authorisation is an immigration question and belongs with an immigration attorney rather than with us.
Background reading and tools
The guides cover the federal treatment in detail. The calculators let you check a number before you commit to anything.
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