Nanny tax threshold changes
In 2025 paying employment taxes becomes required by law once a babysitter, nanny, or other household employee earns $2,800 in a calendar year. This is an increase of $100 from $2,700 in 2024.
Income tax changes
Income tax withholding on a nanny’s behalf is still not required for household employers. But if you and your nanny have agreed to this, note that standard deduction amounts and federal income tax bracket brackets have been updated in 2025.
The 7 possible rates remain the same, but the amount of income to reach each higher rate has increased, resulting in less income taxes to be withheld for those on the cusp of a bracket.
Some states also have also adjusted their state income tax brackets and deductions.
IRS mileage rate
The IRS has not yet announced the mileage reimbursement rate for 2025.
In 2024, the IRS mileage reimbursement rate increased 1.5 cents to 67 cents/mile. For a nanny or other household employee, compensating for miles driven while on the job is not a federal requirement. However, some states such as California, Illinois, and Massachusetts do mandate reimbursement for if driving the employees vehicle is required on the job. In other states, mileage reimbursement can also be offered as a perk to your nanny if you choose.
Family Leave updates
Massachusetts, New Jersey, New York, Washington state, and Washington DC have family leave tax updates in 2025. Contribution rates for MA Family Leave, NJ Family Leave Insurance, NY Paid Family Leave, WA Paid Family & Medical Leave, and Washington DC’s Paid Family Leave have been adjusted for the new year.
Maine and Maryland have enacted new Family Leave programs requiring contributions starting in January and July 2025.
Colorado FAMLI, CT Paid Leave, and Oregon Paid Leave rates remain unchanged from 2024.
Health insurance reimbursement limits
An optional benefit that can be offered to a nanny is to provide or reimburse for health insurance. This is an advantageous way to structure pay because it is tax-free. If reimbursing under QSEHRA, the tax-exempt limit increases to $6,350 in 2025, up from $6,150 in 2024 for individual coverage and $12,800 in 2025, up from $12,450 in 2024.
SIMPLE IRA limit update
Another optional benefit is to help your nanny fund a retirement account, such as IRA or 401(k). One type of plan, a SIMPLE IRA, is particularly well-suited for small employers. In 2025, the contribution limit increases to $16,500, up from $16,000 in 2024, or $20,000 if the employee is 50 or over, also up $500 from the prior year.
Filing for 2024
These changes go into effect started in wages paid in 2025. For 2024’s tax return, the 2024 brackets will continue to be used. And if you have a nanny or other household employee, you would still create and file a W-2 for each employee by January 31, 2025.
What hasn’t changed
- The rates of Medicare and Social Security taxes remain unchanged from last year.
- It is still tax evasion to avoid responsibilities if you do meet the requirements to be considered a household employer.
Download the Paycheck Nanny app for iOS to automatically calculate taxes and withholdings, track time, create & email pay statements.