You can pay a nanny from your personal checking account, but the IRS treats it as household employment with tax obligations you cannot skip
Yes, you can write checks to your nanny from your personal checking account. The account itself is not the problem. The problem is that paying a household employee triggers federal tax withholding, Social Security and Medicare taxes, and state unemployment insurance — and the IRS expects you to handle all of it, whether you use a personal account, a business account, or cash.
Many families pay nannies informally and hope nothing surfaces. The IRS does not care how you pay or what account you use. If you pay someone to work in your home and they earn more than a certain threshold in a year, you are required to report it. Ignoring this creates liability for you: back taxes, penalties, interest, and in some cases criminal charges.
The good news is that the process is straightforward once you understand what you owe and how to track it. You do not need a separate business account or a payroll company, though both can make the work easier.
Key Takeaways
- Paying a nanny from your personal checking account is legal, but you must withhold and pay federal income tax, Social Security tax, Medicare tax, and state unemployment insurance based on what you pay them.
- If you pay a nanny $2,700 or more in a calendar year (the 2024 threshold), you must file Schedule H with your tax return and pay household employment taxes.
- You can pay by check, direct deposit, or cash, but you must keep records of every payment and provide your nanny with a W-2 form by January 31 each year.
- Failure to report household employment taxes can result in penalties, interest, and back taxes that you alone are responsible for — your nanny is not liable for your failure to withhold.
- Some families use payroll services designed for household employees, which handle withholding and tax filing for a fee, but this is optional, not required.
The federal tax threshold for household employees
The IRS sets an annual threshold. In 2024, if you pay a nanny $2,700 or more in a calendar year, you must report it as household employment income. This threshold changes each year, so check the current year's amount before you assume you are below it.
The threshold applies to the total you pay one person in a year, not per paycheck. If you pay a nanny $200 a week for 14 weeks, that is $2,800 — over the threshold. If you pay $150 a week for 15 weeks, that is $2,250 — under it. Once you cross the threshold, you owe taxes on the full amount, not just the amount above the line.
Some states have lower thresholds or different rules. California, for example, requires you to report household employment even if you pay less than the federal threshold. Check your state's requirements separately.
What taxes you owe and how to calculate them
When you pay a nanny, you owe four separate tax obligations:
- Federal income tax withholding: You withhold a percentage of each paycheck based on the W-4 form your nanny completes. The percentage varies by their filing status and dependents.
- Social Security tax: You withhold 6.2% of wages and pay a matching 6.2% yourself, for a total of 12.4%.
- Medicare tax: You withhold 1.45% of wages and pay a matching 1.45% yourself, for a total of 2.9%.
- Federal unemployment tax (FUTA): You pay 6% of the first $7,000 in annual wages (in 2024), which comes entirely from your pocket — you do not withhold it from the nanny's pay.
State unemployment insurance varies by state. Some states charge a percentage of wages; others charge a flat fee. A few states have no household employment tax at all. Look up your state's requirement or contact your state labor department.
The withholding amounts come out of what you pay the nanny. The employer taxes (your share of Social Security and Medicare, plus FUTA and state unemployment) come from your own pocket on top of what you pay them.
How to track payments and keep records
Write checks or use direct deposit so you have a clear paper trail. If you pay cash, keep a written log with the date, amount, and hours worked. The IRS does not require a specific format, but you need something you can show if you are audited.
At the end of each year, add up all the payments you made to that nanny. If the total is over the threshold, you must file Schedule H (Household Employment Taxes) with your tax return. You will also need to provide your nanny with a W-2 form by January 31 showing gross wages and taxes withheld.
Keep your records for at least three years. The IRS can audit back three years as a matter of routine, and longer if they suspect fraud. A simple spreadsheet with date, amount, and cumulative total is enough.
Filing taxes and paying what you owe
Schedule H is the form you file with your personal tax return (Form 1040) to report household employment taxes. You calculate the withholding you owe, the employer taxes you owe, and any estimated tax payments you have already made during the year. The net amount is what you owe when you file, or what you get back if you overpaid.
Some people pay estimated taxes quarterly to avoid a large bill at tax time. You can do this by filing Form 1040-ES (Estimated Tax) with the IRS, but it is not required — you can pay it all when you file your return in April.
If you use a payroll service, they handle the withholding, calculate the taxes, and file Schedule H for you. Services like Care.com's payroll tool or Bambino charge a monthly fee (typically $10 to $30) but save you the math and the filing work. This is optional; you can do it yourself for free if you are comfortable with the calculations.
What happens if you do not report household employment taxes
The IRS does not actively hunt for unreported nanny payments, but they do catch them. Nannies sometimes file their own tax returns and report income you did not report to them. Audits of your personal return can uncover it. A background check or reference check for a future job can surface it.
If you are caught, you owe back taxes plus interest (currently around 8% per year) plus penalties. The penalty for failing to file is usually 5% of the unpaid tax per month, up to 25%. If the IRS decides it was intentional fraud, the penalty can be much higher, and you could face criminal charges.
You alone are responsible for these taxes. Your nanny is not liable for your failure to withhold or pay. If you do not withhold federal income tax, Social Security, or Medicare, you still owe those taxes yourself.
Alternatives if you want to avoid the paperwork
Some families hire through an agency that handles the nanny as their own employee. You pay the agency, and the agency pays the nanny and handles all taxes. This costs more (usually 15% to 25% on top of the nanny's wage) but removes your tax obligations entirely.
Another option is to hire the nanny as an independent contractor and issue them a 1099 form instead of a W-2. This shifts some of the tax burden to them — they become responsible for their own self-employment taxes. However, the IRS has strict rules about who can be classified as a contractor. A nanny who works in your home on a regular schedule under your control is almost always an employee, not a contractor. Misclassifying them as a contractor can trigger an audit and penalties.
The simplest path for most families is to treat the nanny as an employee, track payments, and file Schedule H if you cross the threshold. It takes a few hours a year and costs nothing if you do it yourself.
Frequently Asked Questions
Can I pay my nanny in cash instead of by check?
Yes, you can pay in cash, but you must keep a written record of every payment — the date, amount, and hours worked. Cash payments are harder to document if the IRS audits you, so checks or direct deposit are safer. Either way, you owe the same taxes.
What if my nanny asks me not to report the income?
You are still required to report it and pay taxes. Your nanny's preference does not change your legal obligation. If you do not report it and are audited, you alone face penalties and back taxes. The nanny may also face consequences if they do not report the income on their own tax return.
Do I need a separate business checking account to pay a nanny?
No. You can pay from your personal checking account. The account type does not matter to the IRS. What matters is that you report the income and pay the taxes owed.
What if I pay a nanny less than $2,700 a year?
You do not have to file Schedule H with the IRS if you stay below the federal threshold. However, check your state's rules — some states require reporting at lower amounts. Even if you are below the threshold, you should still keep records in case you go over in a future year or if your state audits you.
Can I deduct nanny expenses on my taxes?
Yes, if you work and pay for childcare so you can work, you may be able to claim the Child and Dependent Care Credit on your tax return. This is separate from reporting the nanny's wages on Schedule H. Talk to a tax professional about whether you may have access to.