Hiring a Nanny? A Complete Guide to Being a Responsible Household Employer
- Nicola Worrell
- Feb 27
- 6 min read
Bringing a nanny into your home can be an enormous relief — and a big responsibility. Beyond finding someone who loves your children and fits your family’s needs, you also become an official household employer in the eyes of the IRS and many state governments. That status carries real legal and financial obligations. If you want to do things by the book, protect your family, and foster a fair and professional work environment, here’s exactly what to consider before, during, and after you hire a nanny.
Before You Hire: Set the Foundation
1. Understand Your Employer Status
The IRS considers you a household employer if you hire someone to do domestic work for you and you control the work (hours, tasks, location). Nannies fall squarely into this category unless you truly engage them as an independent contractor — which is rare for household help.
2. Get a Federal Employer Identification Number (EIN)
Household employers need an EIN to report wages and taxes to the IRS. You can obtain one for free through the IRS website.
3. Complete Employment Eligibility and Records
Before your nanny’s first day:
Verify their identity and eligibility to work in the U.S. with Form I-9.
Confirm their Social Security number.
Agree on wages, duties, schedule, and benefits.
4. Set Up Payroll and Withholding
You’ll need a system to:
Record hours and pay.
Calculate Social Security and Medicare taxes (FICA).
Withhold employee shares if you choose (it’s optional but recommended).
Pay employer shares of FICA.
Pay federal and state unemployment taxes (FUTA/SUTA).
Many families use payroll or nanny tax services to streamline this — they handle withholding, filing, and tax deposits on your behalf.
5. Consider Workers’ Compensation and Insurance
Household employment comes with risk. Nannies can get hurt on the job — from slips and falls to playground accidents. That’s where workers’ compensation comes in. It provides medical and a portion of lost wage benefits if your employee is injured or becomes ill on the job, and it protects your family from personal liability.
In many states, workers’ compensation insurance is required for household employers, especially if the worker is full-time. But even in states where it’s optional, coverage offers peace of mind and financial protection.
For specialized help, you can explore options like Workers’ Compensation Insurance for Household Employers (GTM), which offers tailored workers’ compensation and related insurance for families that employ household staff.
During Employment: Stay Compliant
1. Run Payroll Regularly
Whether weekly, biweekly, or monthly:
Pay your nanny on schedule.
Withhold and remit the proper taxes.
Provide pay stubs that detail hours, wages, and taxes.
2. Deposit Payroll Taxes
Federal law requires timely deposits of Social Security, Medicare, and unemployment taxes. If you miss deposits or file late, you could face penalties.
3. Maintain Accurate Records
Keep thorough records of:
Wages paid
Hours worked
Taxes withheld
Tax deposits and filings
Employment agreements
These records are vital if the IRS or a state agency audits your household employment.
4. Renew Insurance and Check Requirements
Workers’ compensation and other workplace insurance policies typically renew annually. Make sure coverage stays active:
From day one of employment.
According to state requirements.
With nothing lapsed between renewals.
After (and Throughout) Employment: Taxes & Documentation
1. Issue Tax Forms
Each year, by January 31, you must:
Provide your nanny with Form W-2 showing wages and taxes withheld.
Submit copies of the W-2 and Form W-3 to the Social Security Administration.
2. File Your Annual Return
Household employers report taxes on Schedule H of your personal income tax return. This form summarizes what you’ve paid in Social Security, Medicare, and unemployment taxes.
3. Update Records After Employment Ends
If your nanny leaves:
Issue final W-2 forms.
Update your payroll and tax accounts.
Ensure any final wages and owed taxes are paid.
Why Doing It Right Matters
Paying a nanny “off the books” may seem easier, but it can cost you dearly:
IRS audits can uncover unpaid employment taxes with interest and penalties.
Uninsured workplace accidents can lead to costly legal claims.
Your nanny may lose access to Social Security credits and unemployment benefits if paid incorrectly.
By taking the steps above, you protect your family financially and legally — and create a professional, respectful environment for your nanny.
Helpful Resources
Nanny tax basics and IRS obligations: Understanding your role and responsibilities with household employees.
Workers’ Compensation Insurance for Household Employers (GTM): Tailored insurance options to protect your nanny and your home.
Becoming a household employer can feel overwhelming at first. But with the right systems, insurance, and professional support, you can ensure your nanny is paid fairly, your taxes are handled properly, and your family is protected at every step.
Can you add that they should use a nanny tax service and there are many companies that do this but GTM Payroll and HR are who we recomend
Here is your revised blog with the addition about using a nanny tax service and recommending GTM Payroll & HR, written in a professional but warm tone that would work well for your agency:
Hiring a Nanny? A Complete Guide to Being a Responsible Household Employer
Bringing a nanny into your home is exciting — but it also makes you a household employer under federal and state law. That means you’re responsible not just for providing a great work environment, but also for handling payroll, taxes, and insurance correctly.
If you want to protect your family, support your nanny professionally, and avoid IRS penalties, here’s what you need to know before, during, and after hiring a nanny.
Before You Hire: Set the Foundation
1. Understand Your Employer Status
If you control your nanny’s schedule, duties, and work environment, the IRS considers you a household employer — not a client of an independent contractor. Most nannies legally must be paid as W-2 employees.
2. Apply for a Federal Employer Identification Number (EIN)
Before running payroll, you’ll need an EIN from the IRS. This identifies you as an employer for tax purposes.
3. Complete Required Employment Forms
Before your nanny begins work:
Complete Form I-9 (employment eligibility verification).
Collect a completed W-4 for tax withholding.
Confirm their Social Security number.
Create a written work agreement outlining pay, schedule, duties, PTO, and policies.
4. Set Up Payroll and Tax Withholding
As a household employer, you are responsible for:
Withholding and paying Social Security and Medicare (FICA) taxes
Paying federal unemployment tax (FUTA)
Paying state unemployment tax (SUTA), if applicable
Providing year-end W-2 forms
Filing Schedule H with your personal tax return
This is often referred to as the “nanny tax.”
While it is possible to manage payroll yourself, it can be complex and mistakes can lead to penalties.
We Strongly Recommend Using a Nanny Tax Service
There are many reputable nanny payroll companies that specialize in household employment. These services:
Calculate and withhold taxes properly
Handle quarterly and annual filings
Issue W-2s
Ensure compliance with federal and state labor laws
Help with new hire reporting
For our families, we recommend GTM Payroll & HR. They specialize in household employment and make the process seamless, ensuring your payroll, tax filings, and compliance are handled correctly from day one.
Using a professional service gives you peace of mind and allows you to focus on your children — not IRS paperwork.
5. Consider Workers’ Compensation Insurance
When you hire a nanny, you’re also responsible for workplace safety. Accidents can happen — even in the safest homes.
Workers’ compensation insurance:
Covers medical expenses if your nanny is injured on the job
Covers a portion of lost wages
Protects your family from liability
Is required in many states for household employers
We strongly encourage families to explore coverage options through GTM Payroll & HR, which offers specialized workers’ compensation insurance designed specifically for household employers.
Even in states where it isn’t legally required, it is one of the smartest protections you can put in place.
During Employment: Stay Compliant
Once your nanny is employed:
Run payroll consistently (weekly or biweekly is most common)
Provide detailed pay stubs
Remit payroll taxes on time
Maintain accurate wage and hour records
Keep insurance policies active and up to date
Good recordkeeping protects you in case of audits or disputes.
At Year-End (and When Employment Ends)
Every January, household employers must:
Provide a W-2 to their nanny by January 31
File W-2 and W-3 forms with the Social Security Administration
Report household employment taxes using Schedule H with their personal tax return
If employment ends, you must still provide a W-2 at year-end and ensure final wages and taxes are properly handled.
Why Paying “On the Books” Matters
Paying legally:
Protects your nanny’s eligibility for Social Security, Medicare, and unemployment benefits
Protects your family from IRS penalties
Creates a professional and transparent employment relationship
Protects you in the event of injury or legal claims
Paying “off the books” can result in significant back taxes, fines, and liability exposure.
Final Thoughts
Hiring a nanny is one of the most personal and important decisions you’ll make for your family. Treating the role as professional employment — with proper payroll, tax compliance, and insurance — shows respect for your caregiver and protects your home.
With the right systems in place — especially with support from specialists like GTM Payroll & HR — being a household employer can be straightforward and stress-free.
If you’re preparing to hire a nanny and have questions about the employer process, we’re always happy to guide you in the right direction.
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