A household employee (also called a household worker or domestic employee) is a person you pay to perform services in or around your private home and whom you direct about what work to do and how to do it. Typical household employees include nannies, housekeepers, maids, private nurses, chauffeurs, and some in‑home caregivers. Whether a worker is a household employee or an independent contractor depends largely on who controls the work and how it is done — if you control both the tasks and the methods, the worker is usually an employee; if the worker sets their own methods and offers services to the public, they are more likely an independent contractor. (See IRS: “Hiring Household Employees” and “Employment Taxes for Household Employees.”)1,2
Key takeaways
– Classification matters: employee vs independent contractor is determined by control over work, tools, and how services are supplied.
– If you hire a household employee and pay above certain thresholds, you’ll usually owe Social Security and Medicare taxes (FICA) and must pay the employer portion as well.
– You may voluntarily withhold federal income tax, but for FICA the employer must withhold (when thresholds are met).
– Paying “under the table” is illegal and can create tax and legal problems for both parties.
– State and local rules (minimum wage, overtime, workers’ comp, unemployment insurance) vary — check your state’s guidance.
Understanding the distinction: employee vs independent contractor
– Employee: You control what is done and how it’s done, you supply (or direct use of) the tools/supplies, and the worker performs tasks primarily for you. Examples: a nanny who follows your schedule, a housekeeper you direct to clean in certain ways.
– Independent contractor: The worker controls how the job is performed, supplies their own tools, can take jobs from other customers, and often advertises services to the public. Examples: a plumber you hire to fix pipes; a freelance gardener who brings their own crew and equipment and contracts with multiple clients.
Examples (typical classification)
– Usually household employees: babysitters (regular, ongoing), nannies, housekeepers, private nurses, live‑in caregivers, drivers employed exclusively by the household.
– Often independent contractors: repairmen, carpenters, plumbers, many gardeners/yard services (but a gardener who works only for you and follows your instructions could be an employee). The location of services can matter — e.g., a child caregiver working in a daycare is an employee of the daycare, but the same caregiver in your home may be your household employee.
Taxes and payroll responsibilities (U.S. federal)
– FICA (Social Security and Medicare): As of 2024, if you pay a household employee more than $2,700 in cash wages in the year, you must withhold and pay the appropriate Social Security and Medicare taxes (often called the “nanny tax”).3 The employee share is 7.65% (6.2% Social Security + 1.45% Medicare); you, as employer, must pay the same 7.65% employer share. Total FICA cost is 15.3% of applicable wages. (Confirm current thresholds each year with the IRS.)2,3
– Federal income tax: You are not required to withhold federal income tax for a household employee unless the employee asks you to do so, and you agree. If you withhold, you must deposit and report those withholdings properly.1
– Unemployment taxes and state taxes: You may owe state withholding, state unemployment insurance, or federal unemployment (FUTA) depending on thresholds and state rules. State laws vary — many states also require contributions for workers’ compensation. Check your state’s labor and tax authorities.
– Reporting: Household employment taxes are typically reported on Schedule H (Household Employment Taxes) with your Form 1040. You must also provide the employee with a Form W-2 at year‑end and file copies with the Social Security Administration if you paid reportable wages.1
Practical steps — how to hire a household employee properly (checklist)
1. Decide classification
• Determine whether the person is an employee or an independent contractor using factors of control and behavior. When in doubt, follow IRS guidance or consult a tax professional.1
2. Verify legal employment eligibility
• Have the worker complete Form I-9 and review acceptable identity and work‑authorization documents. (Employers must complete the I-9 retention and verification process for employees.)4
3. Get taxpayer/identifying information
• Obtain the worker’s Social Security number and have them complete the redesigned Form W-4 (used for federal income tax withholding) if you agree to withhold federal income tax.5
4. Obtain an employer identification number (EIN)
• You can use your Social Security number to report household employment taxes, but getting an EIN is recommended, especially if you will run payroll or remit employment taxes regularly.6
5. Decide whether to withhold income tax
• If the worker requests federal income tax withholding and you agree, have them complete Form W-4 and withhold accordingly.1
6. Withhold and pay FICA when required
• If you meet federal thresholds (e.g., more than $2,700 in 2024), withhold the employee’s portion of Social Security and Medicare and pay the employer portion. Plan deposits and reporting as required by the IRS.2,3
7. Keep accurate payroll records
• Track wages paid, dates, hours, withholdings, and employer taxes. You will need this information for year‑end reporting and in case of audits.1
8. Report and pay taxes
• Report household employment taxes on Schedule H with your Form 1040 and issue a Form W-2 to the worker (and file required copies with the SSA). Check whether you must deposit taxes during the year.1
9. Check state requirements
• Register and pay any required state payroll taxes, unemployment insurance, and workers’ compensation premiums. Requirements differ by state.
10. Consider a payroll service or household employer agent
• Many payroll providers specialize in household employers and can handle withholding, deposits, reporting, and W-2 issuance.
Sample FICA cost calculation (simple example)
– Example: You pay a nanny $10,000 in reportable cash wages this year:
• Employee FICA withholding (7.65%): $765 withheld from the nanny’s pay.
• Employer FICA contribution (7.65%): $765 you pay as the employer.
• Total FICA cost on $10,000 of wages: $1,530.
Forms you’ll likely use
– Form W-4 (employee completes for federal income tax withholding, if applicable).5
– Form I-9 (employment eligibility verification).4
– Form W-2 (you give to the employee and file with SSA at year‑end if reportable wages paid).1
– Schedule H (attached to your Form 1040 to report household employment taxes).1
– State forms for withholding, unemployment insurance, and workers’ comp as required.
Special considerations
– Minimum wage and overtime: Federal and state minimum wage and overtime laws may apply to domestic workers. State law can impose stricter rules than federal law. Check the Department of Labor and your state labor department.
– Live‑in employees: Some rules (like certain overtime exemptions) differ for live‑in domestic workers.
– Workers’ compensation and unemployment: Many states require employers to carry workers’ compensation for household employees and to pay state unemployment taxes if thresholds are met.
– Immigrant workers and tax ID issues: An employee must be able to provide valid work authorization and, typically, an SSN for employment and reporting purposes.
– Record retention: Keep payroll records for several years in case of IRS or state reviews (follow IRS guidance on retention periods).
What if a household employee asks to be paid “under the table”?
– Paying cash and not reporting wages is illegal and can create penalties, back taxes, interest, and exposure to liability (and limited protections for the worker). Employers and workers both face risks. If a worker asks to be paid off the books:
• Explain the legal risks and say you cannot do that.
• Offer to run a simple legal payroll: collect W-4, withhold FICA (if applicable), and issue a W-2.
• Consider offering gross pay adjusted so the worker’s take‑home matches their expectations while you properly handle payroll taxes.
• If the worker insists on “cash only,” consider hiring someone else or engaging a clearly independent contractor who invoices you and provides their own equipment and services (but make sure classification is correct).
– If you’ve already paid under the table in prior years, consult a tax professional about voluntary disclosure and corrections; you may need to file amended returns or reports.
Is the person who mows my lawn an employee?
– It depends on facts: a one‑time or occasional lawn service that brings their own tools and serves many clients is typically an independent contractor. A gardener you hire to work only for your household on a set schedule and under your direction may be a household employee. Ask the key control questions: who sets hours, supplies tools, hires helpers, and controls how the work is done?
Fast facts
– The “nanny tax” refers to payroll taxes for household employees (Social Security and Medicare taxes plus any applicable unemployment or state taxes).3
– As of 2024, the federal cash wages threshold for household employer FICA liability was $2,700 — check the IRS annually for updates.3
– The IRS does not require you to withhold federal income tax from a household employee unless the worker asks you to withhold and you agree.1
The bottom line
Hiring help for your home is common, but it comes with employer responsibilities when the worker is an employee. Correctly classifying the worker, collecting proper forms, withholding and paying payroll taxes when required, reporting wages, and complying with state labor rules protects both you and the worker. If you’re unsure about classification, tax thresholds, or state obligations, consult the IRS guidance listed below or a tax or employment-law professional. Many household employers find it convenient to use a payroll service experienced with household employment.
Sources and further reading
1) IRS — Hiring Household Employees:
2) IRS — Topic No. 756, Employment Taxes for Household Employees:
3) IRS — Topic No. 751, Social Security and Medicare Withholding Rates:
4) U.S. Citizenship & Immigration Services — Form I-9 Employer Resources:
5) IRS — FAQs on the 2020 Form W-4 (and related W-4 info):
6) Social Security Administration — Household Workers: /
(Information in this article summarizes federal guidance current as of 2024; state rules and federal thresholds can change. For personalized tax or legal advice, consult a qualified professional.)
(Continuing the household-employee guide — additional sections, examples, and a concluding summary.)
Employing a household worker involves more than agreeing on pay and duties. Below are extra topics, clear examples, and practical steps to help you classify, hire, manage payroll, and stay compliant.
Additional legal and labor considerations
– Worker classification: Re-evaluate whether the person is an employee or an independent contractor. The key test is control: if you control what the worker does and how it is done, they are likely an employee; if they control how they do the work and offer services to the public, they may be an independent contractor (IRS guidance) (IRS, “Hiring Household Employees”).
– Minimum wage and overtime: Domestic workers often fall under the Fair Labor Standards Act (DOL). Minimum wage and overtime rules can apply to nannies, housekeepers, home health aides and others. Exemptions and special rules (for example, for live‑in workers) exist; check the Department of Labor and your state labor agency for specifics.
– State and local rules: States vary on unemployment insurance, withholding, workers’ compensation, and paid sick leave. Confirm obligations with your state workforce or labor department.
– Age and special exemptions: Employing minors or family members can bring special rules (for example, certain spouse/child situations and under‑18 employees may be treated differently for Social Security tax in some cases). Check current IRS guidance.
Common real-world examples and how to treat them
1) Full-time nanny employed in your home
– Likely a household employee if you set hours, duties, and provide supplies.
– Tax implications: If you pay more than the IRS threshold for the year (for 2024, more than $2,700 in cash wages), you generally must withhold and pay Social Security and Medicare taxes, pay the employer share, and report household employment taxes (IRS Topic No. 756; Topic No. 751).
– Practical steps: Have them complete Form W-4, verify work eligibility with Form I-9, withhold FICA (6.2% + 1.45%), pay employer share, issue a W-2 at year end, report household employment taxes on Schedule H with Form 1040.
2) Occasional babysitter for date night (single evening, paid small cash amount)
– Often not a household employee under employment‑tax thresholds (if total cash wages during year stay below the threshold), but classification also depends on the frequency and level of control.
– If infrequent and paid less than the threshold, you likely have no employer FICA/FUTA obligations, but keep records.
3) Gardener who brings equipment and works for several neighbors
– Likely an independent contractor if they supply tools, control how the job is done, and offer services broadly.
– If instead you hire a gardener solely under your direction and provide tools, they may be treated as a household employee — especially if you pay significant wages.
4) Housekeeper hired through an agency
– If you hire through an agency that pays the worker, the agency may be the employer (responsible for taxes). If you hire and pay the housekeeper directly and control their work, you are the employer.
Practical hiring and payroll checklist (step-by-step)
1) Classify the worker
• Ask who controls what and how work is done. If you control, treat them as an employee. If they run an independent business, treat them as a contractor.
• When unsure, use IRS resources or speak with a tax professional.
2) Onboard legally
• Have the worker complete: Form W-4 (for withholding), and Form I-9 (employment eligibility verification) (IRS FAQs on 2020 Form W-4; DHS/USCIS I-9).
• Consider obtaining an Employer Identification Number (EIN) for reporting employment taxes instead of using your SSN.
3) Set pay and document terms
• Put the pay rate, schedule, and duties in writing. Include paid time off, holidays, and overtime rules if applicable.
4) Calculate taxes and withholdings
• Determine whether household employment taxes apply (IRS threshold — e.g., $2,700 for 2024 for Social Security/Medicare withholding).
• Withhold employee share of Social Security (6.2%) and Medicare (1.45%) if required, and pay the employer share.
• If the employee requests, you may withhold federal income tax (not required) if both agree.
• Check state withholding requirements.
5) Deposit and report taxes
• Follow IRS rules for deposits (if required). Household employers usually report household employment taxes on Schedule H of Form 1040 and pay them with their income tax return, but if you withhold and the total tax liability passes certain thresholds you may need to make deposits during the year.
• Issue Form W-2 and submit Form W-3 and W-2 copies to the SSA by year end if required.
6) Maintain records
• Keep payroll records, timesheets, copies of Forms W-4 and I-9, paystubs, and canceled checks for at least several years (IRS recommends keeping records for at least four years).
7) Use payroll service or professional help
• Consider payroll services or household employment services that can handle withholding, deposits, and annual filings. This can reduce errors and penalties.
What to do if a worker asks to be paid “under the table”
– Explain the legal risks: paying cash without reporting is illegal for both employer and employee; it can result in unpaid payroll taxes, penalties, interest, loss of Social Security credits for the worker, and potential criminal or civil penalties.
– Alternatives:
1) Offer lawful employment: collect W-4 and I-9, run payroll, withhold/pay taxes.
2) Hire a contractor instead: If the worker legitimately qualifies as an independent contractor (they furnish tools, work for others, control how they do the job), have them invoice you and provide a Form W-9; you may need to issue Form 1099‑NEC if you pay $600+ (but household services typically create employer/employee relationships more often than contractor ones).
3) Use an agency or payroll service to handle payments and taxes.
– If past years were paid under the table and you now want to correct it, speak with a tax advisor. You may need to file amended returns and Schedule H to report and pay back taxes; prompt voluntary correction can reduce penalties.
State unemployment and workers’ compensation
– Unemployment (FUTA/SUTA): You may owe state unemployment taxes if you paid cash wages above state thresholds or met employer criteria. FUTA may apply depending on cash wages and other factors (check IRS and state guidance).
– Workers’ compensation: Many states require household employers to carry workers’ comp insurance for domestic workers. Verify your state’s rules.
Recordkeeping and forms at a glance
– Form W-4: Employee withholding certificate (use redesigned 2020+ form for new hires) (IRS FAQ).
– Form I-9: Employment eligibility verification.
– Employer EIN: Recommended for filing employment taxes.
– Schedule H (Form 1040): Where household employment taxes are reported and paid by household employers.
– Form W-2: Wage and tax statement to the employee (and SSA) at year end.
– Form W-3: Transmittal of Wage and Tax Statements submitted to SSA.
– Form 1099-NEC/W-9: For independent contractor payments (if legitimately classified as contractors).
Examples of household-employer scenarios with likely tax consequences
– You pay a full-time nanny $35,000/year: Employee; FICA withholding and employer FICA due; file Schedule H; issue W-2.
– You pay a babysitter $100 for a one-night gig: Probably not subject to household employment taxes if total cash wages for the year remain below the threshold and the worker is genuinely an occasional babysitter.
– You pay a gardener $3,000 who brings their own equipment and works for neighbors: Likely independent contractor; request a W-9; issue 1099‑NEC if applicable (and if this is a business-to-business relationship, not household employment).
Penalties and enforcement risk
– Failing to report and pay household employment taxes can trigger back taxes, penalties, and interest. The IRS and state agencies can assess employer and employee portions, plus penalties for failing to withhold, deposit, or file required forms.
– For the worker, paying taxes properly ensures Social Security and Medicare credits and eligibility for benefits.
Where to get help and authoritative sources
– IRS — “Hiring Household Employees” and Topic No. 756, and Topic No. 751 for Social Security and Medicare withholding rates (see IRS.gov).
– Social Security Administration — “Household Workers” guidance.
– U.S. Department of Labor — wage and hour rules for domestic service workers.
– State labor and taxation agencies — for state withholding, unemployment, and workers’ compensation rules.
– Consider consulting a qualified CPA, payroll service, or employment law attorney if you have complex hiring situations or past unreported wages.
Concluding summary
Hiring household help can simplify daily life but creates real tax and labor obligations. The core steps are:
1) Classify the worker correctly (employee vs. contractor).
2) Collect required forms (W-4, I-9), consider obtaining an EIN.
3) Withhold and deposit payroll taxes if thresholds are met (Social Security and Medicare; employer share is required).
4) Report and pay household employment taxes—typically on Schedule H with your Form 1040—and issue required year-end forms (W-2).
5) Check state rules for unemployment insurance and workers’ compensation.
6) Keep thorough records and, when in doubt, use payroll professionals or consult the IRS/DOL/state agencies.
Following these steps protects you and your employee, keeps Social Security/Medicare credits intact, and avoids potential penalties. For authoritative guidance and the latest thresholds and rates, refer to the IRS pages on hiring household employees and employment tax topics and consult a tax professional for personalized advice (IRS, “Hiring Household Employees”; IRS Topics No. 756 and 751; SSA, “Household Workers”).