What is a Nanny tax?
If a taxpayer pays a housekeeper or household helper less than a certain amount, the taxpayer will not have to pay Social Security or Medicare taxes on behalf of the employee. The threshold is adjusted for inflation each year based on increases in average wages. However, the federal unemployment tax (FUTA) limit for household employees does not change because this tax is not indexed for inflation. The FUTA applies whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior tax year.
