Should Nannies or Caregivers Be Classified as Independent Contractors?

 Posted on July 17, 2025 in Employment Taxes

Employers need to address a variety of tax issues, including filing the proper forms with the IRS for their employees and withholding payroll taxes. In some cases, employers may try to avoid some of these issues by classifying their employees as independent contractors. Families who hire nannies or others who provide in-home care may treat these workers as independent contractors in order to simplify the process of filing and paying taxes. However, doing so could lead to penalties for worker misclassification.

Because of the potential issues that could arise if nannies or other household employees are misclassified, families can work with an attorney to make sure they are meeting all of their legal requirements. A lawyer with experience in tax law can also address potential penalties and help families take steps to resolve these issues while minimizing their financial losses.

How Home Caregivers Are Classified

Workers may be classified as either employees or independent contractors depending on their relationship with an employer. Certain types of workers who provide services in a home, such as landscapers or electrical technicians, will be considered independent contractors because they have independence, provide services on a temporary basis, and work with multiple clients. However, nannies or other in-home caregivers serve in a more permanent capacity, and they are more likely to be dependent on their employers for financial stability. Because of this, caregivers are almost always classified as household employees, especially in-home caregivers.

Tax Issues Related to Household Employees

Families that employ nannies or other caregivers will need to address multiple tax concerns. These include:

• FICA Tax Withholding: Employers are required to pay Social Security and Medicare taxes for household employees. If the amount paid to a caregiver in a year is above a certain threshold (for 2025, this threshold is $2,800), both the employer and the employee will be required to pay taxes in the amount of 7.65% of the wages paid to the employee. The employee’s portion of these taxes must be withheld from their wages and paid to the IRS. The employer’s portion of the taxes can be paid when filing their annual tax return, estimated tax payments may be made throughout the year, or taxes may be withheld from wages earned from another employer.

• Federal Unemployment Taxes: If wages of at least $1,000 are paid to a household employee during any quarter of the year, the employer will be required to pay federal unemployment taxes. These taxes apply to the first $7,000 paid to the employee, and they are calculated as 6% of the applicable wages. These taxes are not withheld from the employee’s wages; they are paid from the employer’s funds. 

• Federal Income Tax Withholding: Employers are not required to withhold federal income taxes from the wages paid to household employees. However, they may agree to do so if the employee requests it. In these cases, they must file a Form W-4, and they will pay the withheld amounts to the IRS.

• End-of-Year Tax Forms: Employers who are required to withhold FICA taxes or who agree to withhold federal employment taxes must file a Form W-2 and Form W-3 for each household employee. They will need to have an Employer Identification Number (EIN) when doing so.

• Tax Returns: During annual tax filings, employers who were required to pay FICA taxes or unemployment taxes or who agreed to withhold federal income taxes will need to file Schedule H (Form 1040) along with their tax returns. When filing, any taxes owed, including unemployment taxes or the employer’s portion of FICA taxes, will need to be paid in full.

Contact Our San Jose, CA Tax Attorney

Families who employ nannies or other caregivers may be unsure about the tax-related issues that they will need to address. Misclassifying a household employee as an independent contractor could lead to serious consequences, including the requirement to pay all back taxes that are owed, as well as interest and penalties. 

At John D. Teter Law Offices, our San Jose tax lawyer can help families address issues related to taxes for household employees, including making sure the proper forms are filed and that FICA taxes, unemployment taxes, and income taxes are paid correctly. We can also provide representation for people who have questions or concerns related to tax evasion, working to minimize the penalties that may apply in these situations. To get legal help with these issues, schedule a consultation with our attorney by calling 408-866-1810.