Are Household Employee Wages Deductible? (w/Examples) + FAQs

Yes — but only in specific situations. Household employee wages are not deductible as a general personal expense. However, you may qualify for the Child and Dependent Care Credit, use a Dependent Care FSA, claim wages as a medical expense deduction, or write off employer taxes as a business deduction if you are self-employed. The path to a tax break depends on why you hired the household employee and who the employee cares for.

Under IRS Publication 926, any individual who pays a household employee $3,000 or more in cash wages during 2026 must withhold and pay Social Security and Medicare taxes. Failing to comply with these rules carries penalties, back taxes, and interest — a lesson learned the hard way during the infamous 1993 “Nannygate” scandal that derailed a U.S. Attorney General nomination. According to the IRS, roughly 500,000 households file Schedule H each year, yet experts estimate millions more should be filing but are not.

Here is what you will learn in this article:

💰 The exact IRS thresholds that trigger household employment taxes in 2025 and 2026 — and what happens when you miss them
📋 How to file Schedule H, Form W-2, Form I-9, and Form 2441 step by step, line by line
🏥 The four specific ways household employee wages can reduce your tax bill — including a medical deduction most people overlook
⚖️ How the Zoe Baird “Nannygate” case changed enforcement forever and why it still matters today
🏠 State-by-state requirements in California, New York, and Illinois that go beyond federal rules

What Makes Someone a Household Employee?

A household employee is any worker who performs services in or around your home and whose work you control — not just what gets done, but how it gets done. This distinction matters because it separates employees from independent contractors. The IRS uses a control-based test to make this determination.

Common household employees include nannies, babysitters (who work regularly), housekeepers, cooks, maids, gardeners, private nurses, home health aides, and elder caregivers. If you tell the worker when to arrive, what tasks to complete, and how to do them, that person is your employee — even if they call themselves a contractor.

You are not a household employer if you hire a worker through an agency and the agency controls how the work gets done. You also do not count as a household employer when hiring your spouse, your child under age 21, or your parent (with limited exceptions). These exclusions appear directly in the Schedule H instructions.

Employee vs. Independent Contractor

This classification carries real consequences. If you misclassify an employee as an independent contractor, the IRS can hold you liable for all unpaid employment taxes, plus penalties and interest. The worker also loses access to Social Security credits, unemployment benefits, and workers’ compensation protections.

Household Employee	Independent Contractor
You control how the work is done	Worker controls how the work is done
You provide supplies and tools	Worker provides their own supplies
You set the work schedule	Worker sets their own schedule
You issue a W-2	Worker receives a 1099-NEC
You withhold and pay employment taxes	Worker pays self-employment taxes

A nanny who works in your home on a schedule you set is always an employee. A landscaping company that sends a crew to your house once a week is an independent contractor. The gray areas — like a part-time babysitter — depend on the degree of control you exercise.

Federal Household Employment Tax Thresholds

The IRS sets annual wage thresholds that determine when household employment taxes kick in. These thresholds adjust for inflation, so they change from year to year. Missing these thresholds does not eliminate your obligations — it simply means certain taxes do not apply yet.

The FICA Threshold

For 2025, if you pay any single household employee $2,800 or more in cash wages during the calendar year, you must withhold and pay Social Security tax (6.2%) and Medicare tax (1.45%) on all wages paid to that employee — including the first $2,800. For 2026, this threshold rises to $3,000 per employee. You pay a matching 7.65% from your own funds, bringing the total FICA burden to 15.3%.

You may choose to pay the employee’s share of FICA from your own pocket instead of withholding it from their wages. However, if you do this, the amount you pay on the employee’s behalf counts as additional wages for income tax purposes (but not for Social Security and Medicare tax purposes).

The FUTA Threshold

If you pay total cash wages of $1,000 or more in any calendar quarter to all household employees combined, you owe Federal Unemployment Tax (FUTA). The FUTA rate is 6.0% on the first $7,000 of each employee’s annual wages. Most employers receive a 5.4% credit for state unemployment taxes paid, reducing the effective FUTA rate to 0.6%.

Federal Income Tax Withholding

Here is the part that surprises most household employers: you are not required to withhold federal income tax from a household employee’s wages. This is different from a traditional employer-employee relationship. You withhold federal income tax only if the employee requests it on a Form W-4 and you agree. Many household employers and employees skip this step, which can create a surprise tax bill for the employee at filing time.

Tax Type	2025 Threshold	2026 Threshold	Rate
Social Security	$2,800 per employee	$3,000 per employee	6.2% each (employer + employee)
Medicare	$2,800 per employee	$3,000 per employee	1.45% each (employer + employee)
FUTA	$1,000/quarter (all employees)	$1,000/quarter (all employees)	0.6% (after state credit)
Federal Income Tax	Employee must request	Employee must request	Per W-4 elections

Schedule H: A Section-by-Section Breakdown

Schedule H (Form 1040) is the form household employers use to report employment taxes. You attach it to your personal income tax return. If you have never filed it before, it can feel overwhelming — but it follows a logical flow.

Lines A Through C: Do You Need to File?

The form begins with three yes-or-no gateway questions. Line A asks whether you paid any single household employee cash wages of $2,800 or more in 2025 (or $3,000 in 2026). If yes, you proceed. Line B asks whether you withheld federal income tax for any household employee. Line C asks whether you paid total cash wages of $1,000 or more in any quarter. If you answer “yes” to any of these questions, you must complete the rest of the form.

Line 1 asks for total cash wages subject to Social Security tax. For 2025, the Social Security wage base is $176,100 — wages above this amount are not subject to Social Security tax (though Medicare has no cap). Line 2 calculates the Social Security tax (12.4% combined employer and employee share). Lines 3 and 4 handle Medicare wages and taxes (2.9% combined). Lines 5 and 6 address the Additional Medicare Tax (0.9%) for wages exceeding $200,000.

Lines 7 Through 8: Federal Income Tax and Total

Line 7 reports any federal income tax you withheld from employees’ wages. Line 8 adds up lines 2, 4, 6, and 7 to give you the total Social Security, Medicare, and federal income taxes owed.

Lines 9 Through 15: FUTA Tax

This section calculates your Federal Unemployment Tax. Line 9 repeats the $1,000-per-quarter test. Lines 10 through 15 walk you through calculating FUTA tax on the first $7,000 of each employee’s wages, applying the state unemployment tax credit, and arriving at your net FUTA liability.

Lines 16 Through 27: Total Household Employment Taxes

These lines combine your FICA and FUTA obligations, account for any estimated tax payments you already made during the year, and calculate what you still owe or have overpaid. The final amount flows to your Form 1040 tax return.

The Four Ways Household Employee Wages Reduce Your Taxes

This is the core question. While you cannot deduct household employee wages as a standard personal expense, four specific tax provisions create real savings.

1. Child and Dependent Care Tax Credit (Form 2441)

If you pay a household employee to care for a dependent child under age 13 — or a spouse or dependent who is physically or mentally unable to care for themselves — so that you can work or look for work, you may claim the Child and Dependent Care Credit. This credit is worth 20% to 35% of qualifying expenses, depending on your adjusted gross income (AGI).

The maximum qualifying expenses are $3,000 for one qualifying person or $6,000 for two or more. At the lowest credit rate (20%, for AGI above $43,000), that translates to a maximum credit of $600 for one child or $1,200 for two or more children. At the highest rate (35%, for AGI of $15,000 or less), the maximum credit is $1,050 or $2,100.

Nanny wages, housekeeper wages (if part of the job includes childcare), and even the employer’s share of employment taxes paid on those wages all count as qualifying expenses. However, wages paid to your child under 19, your spouse, a person you claim as a dependent, or the parent of the qualifying child do not qualify.

Both spouses must have earned income to claim this credit on a joint return, unless one spouse is a full-time student or disabled. If one spouse earns $25,000 and the other earns $3,000, the credit calculation is limited to the lower earner’s income.

Example: Maria and James both work full-time and pay their nanny $35,000 per year to care for their two children (ages 4 and 7). They also pay $2,677 in employer FICA taxes. Their qualifying expenses total $37,677 — but the credit cap is $6,000 for two children. With an AGI of $95,000, their credit rate is 20%, giving them a credit of $1,200.

What Maria and James Pay	Amount
Nanny wages	$35,000
Employer FICA taxes	$2,677
Total paid	$37,677
Credit-eligible cap (2 children)	$6,000
Credit rate at their AGI	20%
Tax credit received	$1,200

2. Dependent Care Flexible Spending Account (FSA)

If your employer offers a Dependent Care FSA, you can set aside up to $5,000 per year in pre-tax dollars ($2,500 if married filing separately) to pay for qualifying dependent care expenses. Nanny wages, senior caregiver wages, and other household employee wages spent on dependent care all qualify.

The tax savings here come from reducing your taxable income — not from a credit. If you are in the 22% tax bracket and contribute the full $5,000, you save $1,100 in federal income tax plus your share of FICA taxes (7.65%), for a total savings of about $1,483.

Critical rule: You must reduce your Form 2441 qualifying expenses by the amount of Dependent Care FSA benefits you receive. You cannot “double dip.” If you contribute $5,000 to a Dependent Care FSA and spend $6,000 on nanny wages, only $1,000 remains eligible for the Child and Dependent Care Credit.

Example: Tom contributes $5,000 to his employer’s Dependent Care FSA. He pays his nanny $30,000 per year to care for his 3-year-old son. Tom uses the $5,000 from the FSA toward the nanny’s wages. He has $1,000 remaining ($6,000 cap minus $5,000 FSA) eligible for the Child and Dependent Care Credit. At a 20% credit rate, Tom receives an additional $200 credit.

3. Medical Expense Deduction

If you hire a household employee primarily to provide medical care for yourself, your spouse, or a dependent, the wages you pay may qualify as a deductible medical expense. This applies when you hire a home health aide, private nurse, or caregiver for someone with a medical condition that requires ongoing assistance.

To claim this deduction, you must itemize deductions on Schedule A and can deduct only the portion of total medical expenses that exceeds 7.5% of your AGI. The care must be medical in nature — not custodial. A doctor’s written recommendation or prescription for the care strengthens your claim.

Example: Richard hires a home health aide to care for his wife, who has advanced Alzheimer’s disease. He pays the aide $40,000 per year. Richard’s AGI is $100,000. His medical expense threshold is $7,500 (7.5% of AGI). If the aide’s wages are his only qualifying medical expenses, he can deduct $32,500 ($40,000 minus $7,500) on Schedule A.

Richard’s Situation	Amount
Home health aide wages	$40,000
AGI	$100,000
7.5% threshold	$7,500
Deductible medical expense	$32,500

Important: The same wages cannot be used for both the Child and Dependent Care Credit and the medical expense deduction. You must choose one.

4. Employer Tax Deduction for Self-Employed Individuals

If you are self-employed, you may deduct the employer’s share of Social Security and Medicare taxes you pay for a household employee as a business expense on your Schedule C. This includes your 7.65% FICA match and any federal or state unemployment taxes.

You cannot deduct the employee’s wages as a business expense (since the employee works in your home, not your business). But the employment taxes themselves — the cost of being an employer — can offset your self-employment income.

Example: Lisa runs a freelance graphic design business from home. She pays a nanny $25,000 per year so she can work. Lisa pays $1,912.50 in employer FICA taxes (7.65% of $25,000) and $150 in FUTA tax. She can deduct $2,062.50 as a business expense on her Schedule C. She can also claim the Child and Dependent Care Credit on the nanny’s wages (up to the applicable cap).

Form 2441: Filing the Child and Dependent Care Credit

Form 2441 is the form you file to claim the Child and Dependent Care Credit. It has three parts, and every household employer who qualifies should understand how to complete it.

Part I: Care Provider Information

You must identify every person or organization that provided care. Enter their name, address, and taxpayer identification number (SSN or EIN). If a provider refuses to give you this information, enter whatever details you have and attach a statement explaining the situation. You can use Form W-10 to request this information from your care provider.

Part II: Credit Calculation

Line 2 lists each qualifying person (child under 13, disabled spouse, or disabled dependent), their SSN, and the total expenses you paid for their care. Lines 3 through 5 determine the smaller of your earned income or your spouse’s earned income — this is the cap on qualifying expenses. Lines 6 through 11 apply the dollar limits ($3,000 or $6,000), subtract any Dependent Care FSA benefits, and multiply by the applicable credit percentage.

Part III: Dependent Care Benefits

If you received any Dependent Care FSA benefits, Part III calculates how much of those benefits are excludable from income and how much (if any) is taxable. Only expenses exceeding your excluded benefits qualify for the credit. If your Dependent Care FSA benefits exceed your actual expenses, the excess becomes taxable income reported on your Form 1040.

Form W-2 and Form I-9 Requirements

Issuing Form W-2

You must issue a W-2 to each household employee to whom you paid $2,800 or more in 2025 (or $3,000 in 2026) in Social Security and Medicare wages, or from whose wages you withheld any federal income tax. The W-2 must be delivered to the employee by January 31 of the following year. You also file Copy A of each W-2 with the Social Security Administration by the same deadline, along with Form W-3 (Transmittal).

Completing Form I-9

Every household employer must have each new employee complete Form I-9 (Employment Eligibility Verification) at the time of hire. This form verifies the employee’s identity and authorization to work in the United States. You must examine original documents (such as a passport or driver’s license plus Social Security card) within three business days of the employee’s start date.

You do not file Form I-9 with any government agency. You keep it in your records for three years after the hire date or one year after the employment ends, whichever is later. Failure to complete Form I-9 can result in fines ranging from $252 to $2,507 per violation for a first offense.

The Zoe Baird “Nannygate” Scandal

In January 1993, President Clinton nominated Zoe Baird to serve as U.S. Attorney General. During her confirmation hearings, it was revealed that Baird and her husband had hired two undocumented immigrants from Peru as a nanny and driver — and had failed to pay employment taxes for them.

Baird and her husband had eventually paid roughly $16,000 in back taxes, penalties, and interest before the hearings. But the political damage was done. Public outrage — fueled by thousands of calls to Capitol Hill — forced Baird to withdraw her nomination. She became the first Attorney General nominee in modern history to fail confirmation over a tax issue.

The scandal did not stop there. Clinton’s next choice, Judge Kimba Wood, also withdrew after it was revealed she had employed an undocumented babysitter — although Wood had done so before it was illegal and had paid all required taxes. The distinction did not matter politically.

“Nannygate” had three lasting consequences. First, it raised public awareness of household employment tax obligations. Second, Congress passed the “Nanny Tax” simplification provisions in 1994, which raised the wage threshold for FICA and allowed household employers to file employment taxes with their annual income tax return via Schedule H instead of filing quarterly. Third, it became a standard part of the vetting process for every major political nominee going forward.

State-Specific Requirements

Federal rules set the floor, not the ceiling. Many states impose additional obligations on household employers that go beyond what the IRS requires.

California

California requires household employers to register with the Employment Development Department (EDD) and pay four state payroll taxes: State Disability Insurance (SDI), Unemployment Insurance (UI), Employment Training Tax (ETT), and Personal Income Tax (PIT) withholding (if the employee requests it). You must report new hires within 20 days.

California also has some of the strongest overtime protections for domestic workers in the nation. Live-out domestic workers earn overtime after 8 hours in a day or 40 hours in a week. Live-in domestic workers earn overtime after 9 hours in a day or 45 hours in a week. California requires employers to file quarterly DE 9, DE 9C, and DE 88 forms with the EDD.

New York

New York requires household employers to carry workers’ compensation insurance and disability benefits insurance for all domestic employees. The New York State Department of Labor oversees unemployment insurance for household workers. Employers must register and pay state unemployment taxes when paying $500 or more in a calendar quarter. New York City employers must also comply with the NYC Paid Safe and Sick Leave Law, which grants household employees up to 40 hours of paid sick leave per year.

Illinois

Illinois requires household employers to register with the Illinois Department of Employment Security (IDES) and pay state unemployment insurance. The state also requires workers’ compensation coverage for household employees. Illinois does not have state disability insurance, but its wage and hour laws apply to domestic workers, including minimum wage and overtime requirements.

Requirement	California	New York	Illinois
State unemployment insurance	Yes (EDD)	Yes ($500/quarter trigger)	Yes (IDES)
State disability insurance	Yes (SDI)	Yes (mandatory)	No
Workers’ compensation	Required	Required	Required
Overtime for live-out workers	After 8 hrs/day or 40 hrs/week	After 40 hrs/week	After 40 hrs/week
Paid sick leave	Yes (state law)	Yes (NYC: 40 hrs/year)	Yes (state law)
New hire reporting deadline	20 days	20 days	20 days

Three Common Scenarios

Scenario 1: The Working Parents With a Full-Time Nanny

David and Sarah both work full-time. They hire a nanny to care for their two children, ages 3 and 6. They pay the nanny $40,000 per year.

What David and Sarah Do	Tax Result
Pay nanny $40,000/year	Must file Schedule H; withhold and pay FICA
Contribute $5,000 to Dependent Care FSA	Save ~$1,483 in federal tax and FICA
Claim remaining $1,000 on Form 2441	Receive $200 Child and Dependent Care Credit
Pay $3,060 in employer FICA	Deductible if either spouse is self-employed
Issue W-2 by January 31	Required — penalties up to $310/form if late

Scenario 2: The Adult Child Hiring a Caregiver for an Aging Parent

Michelle hires a home health aide to provide daily medical care for her mother, who has Parkinson’s disease and lives with her. Michelle pays the aide $30,000 per year.

What Michelle Does	Tax Result
Pays aide $30,000/year for medical care	Qualifies as medical expense (with doctor’s note)
AGI of $80,000	7.5% threshold = $6,000
Deducts $24,000 on Schedule A	Reduces taxable income by $24,000
Files Schedule H	Must pay employer FICA and FUTA
Does NOT claim Dependent Care Credit	Cannot use same wages for both medical deduction and care credit

Scenario 3: The Self-Employed Freelancer With a Part-Time Babysitter

Kevin is a self-employed web developer. He hires a part-time babysitter for his 5-year-old daughter three days a week while he works from home. He pays the babysitter $15,000 per year.

What Kevin Does	Tax Result
Pays babysitter $15,000/year	Must file Schedule H; withhold and pay FICA
Claims $3,000 on Form 2441	Receives $600 Child and Dependent Care Credit (20% rate)
Pays $1,147.50 in employer FICA	Deducts as business expense on Schedule C
Pays $90 in FUTA	Deducts as business expense on Schedule C
Issues W-2 by January 31	Required

Mistakes to Avoid

Misclassifying your employee as an independent contractor. If you pay a nanny and issue a 1099 instead of a W-2, the IRS can reclassify the worker as an employee. You will owe all back employment taxes, a penalty equal to 1.5% of wages, and 20% of the employee’s share of FICA that you failed to withhold. This is the most common and most expensive mistake household employers make.

Paying “under the table.” Cash payments with no tax reporting violate federal law. If discovered — through an audit, a workers’ compensation claim, or the employee filing for unemployment — you face back taxes, penalties, and potential criminal charges for tax evasion under 26 U.S.C. § 7201.

Missing the W-2 filing deadline. If you fail to provide your household employee a W-2 by January 31, the IRS imposes penalties starting at $60 per form (if filed within 30 days late) and increasing to $310 per form if filed after August 1 or not filed at all.

Forgetting Form I-9. Many household employers do not realize they must complete Form I-9 for domestic workers. Fines for a first-time violation range from $252 to $2,507 per employee.

Double-dipping on tax benefits. You cannot claim the Child and Dependent Care Credit and the medical expense deduction on the same wages. You also cannot claim the credit on wages excluded through a Dependent Care FSA. The IRS cross-references these forms, and taking both triggers an audit flag.

Ignoring state requirements. Filing Schedule H with the IRS does not satisfy your state obligations. Many states require separate registration, quarterly filings, and additional insurance coverage. In California alone, the failure to carry workers’ compensation insurance is a criminal misdemeanor punishable by a fine of up to $10,000 or imprisonment.

Do’s and Don’ts

Do’s

Do obtain an EIN. Apply for a Federal Employer Identification Number using IRS Form SS-4 before your employee’s first payday. You need it to file Schedule H and issue W-2s.
Do complete Form I-9 on day one. Verify your employee’s identity and work authorization within three business days of hire because federal law mandates this for all employers — including households.
Do keep detailed records. Track all wages paid, taxes withheld, and hours worked for at least four years because the IRS can audit household employment tax returns within that window.
Do give your employee the option to withhold income tax. While you are not required to withhold federal income tax, offering the W-4 option helps your employee avoid a surprise tax bill at filing time.
Do explore all available tax benefits. Stack the Dependent Care FSA with the Child and Dependent Care Credit (on remaining expenses) to maximize your savings legally.
Do check your state’s requirements. Register with your state employment agency, obtain required insurance, and file quarterly state forms in addition to federal Schedule H.

Don’ts

Don’t pay cash “off the books.” It is illegal, exposes you to penalties, and denies your employee Social Security credits and unemployment eligibility.
Don’t assume part-time workers are exempt. The $3,000 threshold (2026) applies regardless of whether the employee works full-time or part-time. A babysitter paid $3,000 or more triggers FICA.
Don’t skip workers’ compensation insurance. Many states require it for household employees. An on-the-job injury without coverage exposes you to personal liability for medical bills and lost wages.
Don’t wait until tax time to handle payroll. Set up a system to track wages and withhold taxes every pay period. Scrambling at year-end leads to errors and missed deadlines.
Don’t confuse the Dependent Care FSA with a Health Care FSA. The Dependent Care FSA has a $5,000 cap and covers childcare or elder care expenses. A Health Care FSA covers medical expenses. They are separate accounts with separate rules.

Pros and Cons of Hiring a Household Employee “On the Books”

Pros

Legal compliance. You avoid IRS penalties, back taxes, and potential criminal liability that come with paying under the table.
Tax credits and deductions. Paying on the books unlocks the Child and Dependent Care Credit, Dependent Care FSA, medical expense deduction, and business deductions for employer taxes.
Employee loyalty and quality. Workers who receive proper pay stubs, Social Security credits, and tax forms tend to be more reliable and committed to their role.
Unemployment protection. If you must let the employee go, they can file for unemployment benefits — which protects you from wrongful termination claims where the employee argues they were never a “real” employee.
Peace of mind. The Zoe Baird case proved that noncompliance with household employment tax rules can surface at the worst possible time and carry consequences far beyond tax penalties.

Cons

Higher cost. Employer FICA (7.65%), FUTA (0.6%), and state unemployment taxes add 8–12% to the base wage cost.
Administrative burden. You must track wages, withhold taxes, file quarterly state forms, file Schedule H, and issue W-2s — or pay a payroll service to do it for you.
State complexity. Each state has different rules for unemployment insurance, disability insurance, workers’ compensation, overtime, and sick leave. Multistate compliance (for families who split time between homes) adds another layer.
Workers’ compensation cost. Premiums vary by state but typically run 1–3% of wages for domestic workers. In high-cost states like New York, it can be more.
No deduction for the wages themselves. Unless the wages qualify under one of the four specific provisions discussed above, the base wages you pay a household employee are not deductible. They are a personal expense.

Key Entities and Their Roles

Understanding the organizations involved helps you navigate the process.

IRS (Internal Revenue Service): Administers federal household employment taxes. Publishes Publication 926 (the Household Employer’s Tax Guide) and oversees Schedule H.
Social Security Administration (SSA): Receives Copy A of Form W-2 and credits wages to the employee’s earnings record for future Social Security benefits.
U.S. Department of Labor: Enforces the Fair Labor Standards Act (FLSA), which sets minimum wage and overtime requirements for domestic workers.
U.S. Citizenship and Immigration Services (USCIS): Issues Form I-9 and enforces employment eligibility verification requirements.
State Employment Agencies: (e.g., California EDD, New York DOL, Illinois IDES) Administer state unemployment insurance, disability insurance, and new hire reporting.
State Workers’ Compensation Boards: Oversee mandatory workers’ compensation insurance requirements in states that require coverage for household employees.

FAQs

Can I deduct my nanny’s wages on my tax return?
No. Nanny wages are not deductible as a personal expense, but you may claim the Child and Dependent Care Credit or use a Dependent Care FSA to reduce your tax bill.

Do I need to pay Social Security taxes for a babysitter?
Yes — if you pay that babysitter $3,000 or more in cash wages during 2026. Below that threshold, no FICA taxes are required.

Is the Child and Dependent Care Credit refundable?
No. It is a nonrefundable credit, meaning it can reduce your tax liability to zero but will not generate a refund beyond what you owe.

Can I pay my nanny as an independent contractor?
No. A nanny who works in your home under your direction is a household employee. Misclassifying them triggers IRS penalties and back taxes.

Do I need an EIN to hire a household employee?
Yes. You must obtain a Federal Employer Identification Number to file Schedule H and issue W-2 forms to your household employee.

Can I claim the Dependent Care Credit and the medical expense deduction on the same wages?
No. The IRS prohibits using the same wages for both benefits. You must choose the option that provides the greater tax savings.

What happens if I don’t file Schedule H?
Yes — there are consequences. The IRS can assess unpaid taxes plus a failure-to-file penalty of 5% per month (up to 25%) and a failure-to-pay penalty of 0.5% per month.

Does my household employee need to file a tax return?
Yes — if their total income meets the standard filing threshold. Your W-2 reports their wages, and they must file Form 1040 to report that income.

Can I use a Dependent Care FSA to pay for elder care?
Yes. A Dependent Care FSA covers care for a qualifying adult dependent who lives with you and cannot care for themselves, not just children under 13.

Do I have to provide health insurance to a household employee?
No. Household employers are not subject to the Affordable Care Act’s employer mandate, regardless of how much they pay the employee.

Are household employment taxes different from the “nanny tax”?
No. “Nanny tax” is the informal term for household employment taxes — they refer to the same Social Security, Medicare, and FUTA obligations.

Can my teenager babysit without triggering employment taxes?
Yes — if the babysitter is under age 18 and babysitting is not their principal occupation. This exception appears in IRS Publication 926.

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