Paying a nanny legally (can I pay my nanny cash?)
Can I pay my nanny cash “under the table”? In most cases, no.
Here’s the simple rule: if you pay a nanny, babysitter, or other in-home caregiver $2,800 or more in a year (or more than $1,000 in any calendar quarter) to work in your home, you’re considered a household employer. That means you’re required to handle household payroll taxes (often called “nanny taxes”). If you hire a full-time nanny for more than a few weeks, you’ll almost always meet this threshold.
Why pay nanny taxes?
Paying legally protects both you and your nanny. It gives your nanny reportable income, which matters for things like renting an apartment, getting a mortgage, or building credit. It also ensures your nanny is covered by Social Security and Medicare, and can be eligible for unemployment benefits if a job ends unexpectedly.
A good example is 2020—many workers depended on unemployment during layoffs. If someone has underreported income, those benefits can be reduced or unavailable when they’re needed most.
What might taxes cost you as a Texas household employer?
Let’s use a common pay example to estimate the added cost of paying legally.
If you pay a full-time nanny $23/hour, that’s about:
$1,840 per biweekly paycheck, or
$47,840 per year
With standard assumptions, your employer tax costs on that salary are often around $4,000 per year.
You may also be eligible for tax savings through the Child and Dependent Care Tax Credit, depending on your household income and the tax rules in place when you file.
Can I use a payroll service to handle my nanny’s payroll?
Yes! When you use a payroll service, they will handle setting your employee up and you can choose to use their direct deposit services so you never have to worry about writing a check or filing your quarterly and annual taxes.
Please note that this article is meant to provide information and should not be considered legal or tax advice. Please consult with your attorney or tax professional if you have specific circumstances that require professional guidance.