Category: Tax Changes

New Nanny Tax changes for 2025

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.

Commuter benefit limit update

As a pre-tax benefit, up to $325/month can be allocated for parking or mass transit costs. Leveraging this optional benefit results in less taxes paid by both your nanny and you. This amount is an increase of $10/month from 2024 to 2025.

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.

Does the WA CARES Fund apply to my nanny?

The WA Cares Fund is intended for all employees, including household employees, in the state of Washington to contribute to support the access of long term care when needed.

WA Cares Fund delayed

The Fund was scheduled to start collection on January 1, 2022. However, this has now been postponed until at least April of 2022 while updates to the plan are being made.

According to wacaresfund.wa.gov:

The Legislature and Governor Inslee have announced plans to change and improve the WA Cares Fund during the 2022 legislative session, which is scheduled to conclude in March 2022. Per direction from the Governor, ESD will not collect premiums from employers until April 2022 or until further direction is received.

Is my nanny or babysitter a household employee?

A nanny or babysitter who will be paid $2,400 or more in 2022 is typically considered a household employee, for which other taxes will be required.

For more information on your household employer responsibilities, download Paycheck Nanny from the Google Play store for Android devices or the App Store for iOS devices. This will automatically calculate taxes and withholdings, track time, create & email pay statements and guide you through your tax responsibilities.

Does Trump’s payroll tax deferral affect my nanny’s paycheck?

You may have heard that President Trump issued an Executive Order allowing deferral of employee payroll tax from Sept 1, 2020 through Dec 31, 2020. What does this payroll tax deferral mean to your nanny’s paycheck?

The key point about this bill is currently it is only an optional deferral of employee portion of payroll tax (which is the 6.2% total withheld from your employee’s paycheck for Social Security and Medicare).

So as it stands, if you change your nanny’s pay so this amount is not withheld, your nanny will see a small increase in take home pay for the remainder of the year, but will then have to re-pay that increase back by April 30, 2021.

And according the IRS, you as the household employer are responsible for collecting the deferred amount back from the employee between January 1, 2021 and April 30, 2021. If you are unable to collect that amount from the employee, you as the employer would still be responsible for paying it back by or penalties will accrue starting May 1, 2021.

President Trump is hoping that further legislation occurs to make this deferral re-payment forgiven, but that has not occurred yet. 

If you and your nanny do decide to stop withholding payroll tax starting September 1, you can do this via the option under Withholdings in the iOS version or Android version of the Paycheck Nanny app of whether to “Withhold FICA”.  Turning this option off would enable payroll tax deferral.

For more information on the IRS guidance on this employee payroll tax deferral, see  https://www.irs.gov/pub/irs-drop/n-20-65.pdf.