What this calculator answers

When you pay a household employee (nanny, in-home caregiver, housekeeper) more than the IRS threshold (2,800 dollars in 2026, indexed annually), you become a household employer with the same payroll tax obligations as a small business. The 'nanny tax' is shorthand for the combination of Social Security, Medicare, federal unemployment, and state unemployment taxes you owe, plus the withholdings the employee owes. This tool estimates the total cost-to-employ on top of gross wages.

How the math works

On the employer side, you owe 6.2 percent Social Security plus 1.45 percent Medicare on gross wages (7.65 percent total), plus 0.6 percent FUTA on the first 7,000 dollars per year, plus state unemployment (rates vary by state, commonly 0.5 to 5 percent on the first 8,000 to 30,000 dollars). On the employee side, the same 7.65 percent FICA is withheld plus federal and state income tax withholding. The tool computes both sides and shows the total amount that needs to come out of your bank account each pay period.

When to use it

• You are hiring a nanny, caregiver, or housekeeper and want to budget realistically for the total cost, not just the agreed hourly wage.
• You are deciding between formal payroll (with taxes) and informal cash payment, and want to see what the legal cost looks like.
• You are negotiating a hire and want to understand how gross-up calculations work so the employee actually nets their target take-home.
• You are reviewing whether to claim the Child and Dependent Care Credit or use a Dependent Care FSA to offset the cost.

Common mistakes

• Paying under the table to avoid paperwork. The IRS, state tax agencies, and unemployment agencies all share data; getting caught means back taxes, penalties, and interest, often years later.
• Forgetting workers compensation insurance. Most states require household employers to carry it; some workers compensation policies attach to homeowners insurance for a small additional premium.
• Confusing employees with independent contractors. The IRS classifies most household help as employees regardless of what the contract says. Misclassification is one of the most-audited household issues.
• Failing to issue a W-2 at year end. Household employers must provide a W-2 to the employee and file with the Social Security Administration by January 31.

A worked example

You agree to pay a nanny 25 dollars an hour for 40 hours a week, or 52,000 dollars per year gross. Employer payroll taxes total about 7.65 percent of wages plus FUTA and state unemployment, roughly 4,400 dollars annually for a worker in a typical state. Your total cost-to-employ is approximately 56,400 dollars. The nanny's net take-home, after FICA withholding and estimated federal and state income tax withholding, is roughly 38,000 to 41,000 dollars depending on their filing status and state.

Frequently asked questions