How to Manage Payroll for Nannies, Housekeepers, and Domestic Employees

If you hire a nanny, housekeeper, or other in-home help, you may be considered a household employer under IRS rules. That means you're responsible for managing payroll, withholding taxes, and filing the right paperwork, just like any other employer.

In this guide, we’ll walk you through how to legally and efficiently manage household employee payroll, avoid IRS penalties, and stay compliant with both federal and state laws.

What Is a Household Employee?

A household employee is someone you hire to work in or around your home, and you control how and when they do their job. This includes:

• Full-time or part-time nannies and babysitters

• Housekeepers, cleaners, or maids

• Senior caregivers or private nurses

• Gardeners and yard workers (not hired through a company)

• Personal chefs or home managers

  
  

If you pay them directly and they don’t operate their own business, they’re likely an employee, not an independent contractor. That distinction matters for taxes and legal compliance.

Why You Shouldn’t Pay Under the Table

Some families pay household workers “under the table” to avoid taxes. But doing so can result in:

• IRS penalties and back taxes

• Ineligibility for tax credits (like the Child and Dependent Care Credit)

• Problems for your employee with Social Security or unemployment benefits

• State fines for failure to register as an employer

  
  

Paying legally protects both you and your employee—and it’s easier than you might think.

Payroll Requirements for Household Employers

If you pay a household employee more than $2,700 in 2024 (adjusted annually), here’s what you must do:

1. Get an EIN (Employer Identification Number)

Apply at irs.gov for a free EIN to report employment taxes.

2. Register With Your State

Many states require registration for withholding income tax and unemployment insurance. Check your state’s Department of Revenue or Labor website.

3. Withhold and Pay Employment Taxes

You must typically:

• Withhold Social Security and Medicare taxes (FICA)

• Pay the employer share of FICA

• Pay federal and state unemployment taxes

• Withhold federal and state income tax if requested by the employee

  
  

Use IRS Form W-4 to determine withholding.

4. File Tax Forms

• Form W-2: Provide to your employee by January 31 each year

• Form W-3: Summary sent to the Social Security Administration

• Schedule H: Filed with your personal tax return (Form 1040)

• State forms for quarterly or annual tax reporting

  
  

5. Keep Payroll Records

Track hours worked, wages paid, and taxes withheld. Some states require this for up to four years.

Should You Use a Household Payroll Service?

Yes,especially if you want to save time, avoid mistakes, and stay fully compliant.

At Missouri Valley Payroll, we handle:

• Tax calculations and withholdings

• Filing all required federal and state forms

• Direct deposit for employees

• End-of-year W-2s and Schedule H preparation

  
  

We simplify nanny payroll, housekeeper payroll, and other domestic employment needs—so you can focus on your family, not the paperwork.

Household Employer Payroll FAQs

Do I need to issue a W-2 to my nanny? Yes, if you paid them $2,700 or more in the calendar year.

Can I take a tax credit for nanny expenses? Yes, if you pay legally and meet IRS requirements, you may qualify for the Child and Dependent Care Tax Credit.

Is my babysitter a household employee? If they work regularly and you control their schedule, they probably are. One-time sitters may not qualify.

Final Thoughts

Being a household employer means more than just writing a check—it means managing payroll and taxes correctly. With the right tools or a trusted payroll provider, staying compliant is simple and stress-free.

Need help with household employee payroll?Visit MissouriValleyPayroll.com or contact us today for affordable, professional payroll services built for families like yours.

Disclaimer

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Household employment laws vary by state and individual circumstances. Always consult a qualified tax professional or attorney to ensure compliance with federal and state regulations.