Hiring a full-time nanny puts you in a complex position: you need qualified childcare, but you're now an employer responsible for payroll taxes, workers' compensation, and legal compliance. Getting nanny payroll wrong can result in hefty back taxes and penalties, so understanding your obligations upfront saves stress (and money) later.
Why Nanny Payroll Matters
When you hire a full-time nanny, the IRS considers her a household employee. This means you must withhold federal income tax, Social Security, and Medicare taxes—just like any other employer. Many families unknowingly skip this step, thinking cash payments are simpler, but the IRS actively audits household employment, and penalties can reach 40% of unpaid taxes.
Beyond taxes, full-time nannies typically qualify for unemployment insurance in most states, and some states mandate workers' compensation coverage. Handling these obligations yourself is possible but tedious; most families use a payroll service to stay compliant and protect themselves legally.
How Nanny Payroll Services Work
A payroll service designed for household employers handles the heavy lifting:
- Tax withholding and filing: They calculate federal, state, and FICA taxes based on your nanny's W-4 form and file quarterly and annual returns with the IRS and state authorities.
- Wage payment processing: Services deposit funds directly into your nanny's bank account on a schedule you choose (weekly, bi-weekly, or monthly).
- Tax deposit management: They either remit taxes on your behalf or provide clear instructions on how and when to pay.
- Year-end reporting: They prepare and file Form W-2 for your nanny and Schedule H (Household Employment Taxes) for your tax return.
- Compliance tracking: Reputable services stay updated on changing tax laws and requirements by state.
Some services also handle I-9 verification, background checks, and liability insurance recommendations—features worth considering depending on your needs.
Typical Costs
Nanny payroll services typically charge between $100 and $300 per year, though some operate on a per-payroll basis (usually $5 to $15 per processing).
What affects pricing:
- Service frequency (weekly processing costs more than monthly)
- Whether you need state unemployment or workers' compensation setup
- Add-on services like background check coordination or contract templates
- Whether the service handles just payroll or also HR support
For a typical full-time nanny earning $35,000 to $50,000 annually, annual payroll service fees represent less than 1% of your total employment cost—far cheaper than potential IRS penalties or back taxes.
Choosing the Right Service
Look for a payroll provider that explicitly serves household employers and has been in business for at least five years. Check whether they're familiar with your specific state's requirements (some states have quirks; California and New York, for instance, have stricter nanny employment laws).
Verify they offer:
- Automated tax filing and deposit (no manual steps on your end)
- Customer support by phone or email
- Clear pricing with no hidden fees
- A money-back guarantee if they make an error
Popular options include Care.com's nanny payroll feature, SurePayroll's household edition, and specialized providers like GTM Household Payroll. Mercoly helps you compare trusted Full-Time Nannies providers—including payroll service recommendations—in one place, making it easier to understand your total employment costs upfront.
What You'll Need to Gather
Before signing up for a payroll service, have these documents ready:
- Your nanny's full legal name, Social Security number, and address
- Her I-9 employment eligibility documentation
- Confirmation of her gross annual salary
- Your state and federal employer identification numbers (EIN)
- Your home address and tax filing status
Most services can walk you through this during setup, which typically takes 15 to 30 minutes.
Frequently Asked Questions
Q: Do I really need a payroll service, or can I file taxes myself? Technically you can file Schedule H yourself, but you'll need to calculate withholdings, make quarterly tax deposits, and file forms with multiple agencies—errors are common and costly.
Q: What happens if I hired a nanny before setting up payroll? You can still set up compliant payroll retroactively; most services help you file back taxes and pay what's owed, though you may owe penalties.
Q: Does a payroll service protect me legally? Payroll services ensure tax compliance, but they don't shield you from liability claims. You'll still want nanny liability insurance for that protection.
Start comparing Full-Time Nannies providers today to find one that meets your family's needs and budget.