Household employer tax: what the US nanny tax means for employers and staff
If you pay someone to work in your home under your direction, the tax authorities in many countries treat you as an employer, not just a customer. In the United States this is commonly called the nanny tax. The short version: a household employee is usually different from a self-employed contractor, and the employer may owe payroll taxes, keep records and issue year-end paperwork. Skipping this can leave both sides with problems later.
Who counts as a household employee
A household employee does work in or around your home, such as a nanny, cook, housekeeper, private nurse, gardener or driver. The key test is control. If you decide what work is done, how it is done and when, the person is generally treated as an employee even if you pay in cash and call it informal help. A person who runs their own business, brings their own tools and serves many clients is more likely to be a contractor, such as a cleaning company that sends staff.
The classification is not a matter of preference. Calling an employee a contractor does not remove the obligations, so check the official guidance if you are unsure.
What US employers typically have to deal with
- Social security and Medicare taxes. Usually shared between employer and employee, with an earnings threshold that changes from year to year.
- Federal unemployment tax. A separate employer-paid tax that may apply above a wage threshold.
- State obligations. Many states add their own unemployment insurance, and some require workers' compensation cover.
- Work eligibility. Employers must confirm the worker is allowed to work, and keep the required form on file.
- Annual reporting. Household employers usually report these taxes with their own personal return, using a schedule designed for the purpose, and give the employee a wage statement after year end.
Rates and thresholds are updated regularly, so use the IRS household employer guidance and your state tax agency for current figures instead of any number quoted in an article.
Why the employee also benefits
When wages are reported, the worker builds a record for retirement benefits and can show proof of income when applying for a loan, a rental or a visa. Unreported cash pay leaves nothing to show. Workers can also lose protection if they are injured on the job and there is no cover.
Practical steps
- Decide whether the person is an employee, using the control test above.
- Agree pay, hours, duties, holidays and notice in a short written agreement.
- Record every payment with the date and amount. Pay by bank transfer where possible.
- Collect the worker's details and eligibility documents at the start.
- Set aside the employer share of taxes as you go, instead of facing a large bill in spring.
- Consider a payroll service or accountant who handles household employers.
If you live in the Gulf but have a US link
US citizens and residents are generally taxed on worldwide income, and that can extend to obligations as an employer. The important question is whether the work happens in the United States. A nanny working in a US home you own or rent for family use raises US questions; a housemaid working in your flat in the Gulf is normally governed by the local labour and domestic worker rules instead.
Those local rules deserve the same seriousness. Gulf countries commonly require written contracts, visa sponsorship, wage payment through approved channels in some cases, medical cover, time off and an end-of-service payment. Details differ by country, so ask the labour ministry or a licensed recruitment office. Never keep a worker's passport, which is prohibited or restricted in several countries.
If you have both a US filing obligation and domestic staff abroad, ask a US-qualified tax adviser whether any filing applies. Do not assume that staff abroad are automatically outside the rules, or automatically inside them.
Mistakes to avoid
- Treating regular, directed help as a contractor to avoid paperwork.
- Paying cash with no record.
- Forgetting that a worker who becomes ill or injured needs cover.
- Waiting until a dispute or audit to put arrangements in writing.
The paperwork is modest compared with the cost of an unpaid tax bill, a penalty or a dispute with someone who has looked after your family.
Dealzbook publishes general information, not personal advice. Rules and prices change, so check with the relevant authority or a licensed adviser before you act. See our editorial policy, or tell us about a mistake.
