If you employ a nanny, babysitter, caregiver, housekeeper, or other domestic worker in your home, there are some important 2026 nanny tax changes you need to understand. These affect whether you must pay nanny taxes, how much you owe, and your reporting obligations.
The Nanny Tax Threshold Has Increased for 2026
For the 2026 tax year, the domestic employee coverage threshold — often called the “nanny tax threshold” — has increased to $3,000. This means:
If you pay a household employee $3,000 or more in cash wages during 2026, you are a household employer and must pay Social Security and Medicare taxes on those wages. This is up from the $2,800 threshold in 2025.
Note: Cash wages include hourly pay, salary, overtime, and bonuses — but don’t include non-cash benefits like room and board.
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 brackets have been updated for 2026.
The seven federal income tax rates remain the same, but the amount of income required to reach each higher rate has increased again for 2026 due to inflation adjustments. This generally results in slightly less federal income tax being withheld for taxpayers whose earnings fall near a bracket threshold.
Some states have also adjusted their state income tax brackets and standard deductions for 2026, which may impact household payroll withholding at the state level.
IRS mileage rate
In 2026, the IRS mileage reimbursement rate has increased to 72.5 cents per mile from 70 cents per mile in 2025. For a nanny or other household employee, reimbursing mileage driven while on the job is not a federal requirement. However, some states — including California, Illinois, and Massachusetts — require reimbursement if the employee must use their own vehicle for work-related duties.
In other states, mileage reimbursement may still be offered as an optional benefit or perk if you choose.
Family Leave updates
Several states continue to adjust paid family and medical leave contribution rates for 2026.
States with annual contribution rate updates include Colorado FAMLI, New Jersey, New York, and Washington state where contribution rates for their respective family and medical leave programs have been adjusted this year.
Maine and Minnesota recently launched new paid family leave programs with continue phased implementation with updated contribution requirements in 2026.
Connecticut Paid Leave, Massachusetts, Oregon Paid Leave or Washington DC have not announced structural or contribution rate changes for 2026.
Health insurance reimbursement limits
An optional benefit that can be offered to a nanny is to provide or reimburse for health insurance. This remains an advantageous way to structure pay because it is tax-free when properly administered.
For 2026, the IRS has again increased the maximum tax-exempt reimbursement limits under a QSEHRA, reflecting annual inflation adjustments. These updated limits apply to both individual plan, which is $6,450 annually for 2026 ($6,350 for 2025) and family coverage $13,100 for 2026 ($12,800 for 2025).
Employers offering health insurance reimbursement should ensure they are using the correct limits for the year in which reimbursements are made.
SIMPLE IRA limit update
Another optional benefit is to help your nanny fund a retirement account, such as an IRA or 401(k). One type of plan, a SIMPLE IRA, continues to be well-suited for small and household employers.
For 2026, the IRS has increased the annual SIMPLE IRA contribution limits once again to $17,000 (from $16,500), including higher limits of $21,000 for employees age 50 and over. These increases reflect ongoing inflation indexing and build on the prior year’s limits.
Commuter benefit limit update
As a pre-tax benefit, household employers may allow a monthly amount to be allocated for parking or mass transit costs.
For 2026, the IRS has increased the monthly commuter benefit limit to $240/month from the 2025 level of $225/month. Leveraging this optional benefit continues to reduce taxable income for both your nanny and you, resulting in payroll tax savings when applicable.
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.
Filing for 2025
These changes go into effect started in wages paid in 2026. For 2025’s tax return, the 2025 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, 2026.
FAQ: 2026 Nanny Taxes
Do I have to pay nanny taxes in 2026?
Yes, if you pay a household employee $3,000 or more in cash wages during the year.
What is the nanny tax threshold for 2026?
The threshold is $3,000, up from $2,800 in 2025.
When are W-2s due for household employees?
W-2s must be provided and filed by January 31 for the prior year.
