A nanny tax—also known as a household-employment tax—is not a legal term, but refers to a federal social security tax imposed on the employer of a domestic employee (such as a nanny) if the employer pays the employee more than a specified amount in total wages in a year.
In California, the 'nanny tax' refers to federal and state tax obligations that an employer has when they hire a household employee, such as a nanny, and pay them more than the threshold amount. As of the knowledge cutoff in 2023, the federal threshold is $2,400 for tax purposes. If an employer pays a nanny more than this amount in a year, they are required to withhold Social Security and Medicare taxes and may also be responsible for paying federal unemployment tax. In addition to federal taxes, California employers must also adhere to state employment tax requirements, which include state disability insurance, unemployment insurance, employment training tax, and personal income tax withholding. Employers in California are required to report their household employee's wages to the Employment Development Department (EDD) and pay any applicable state taxes. Failure to comply with these tax obligations can result in penalties and interest charges.
