Question: What is the nanny tax?
Answer: The nanny tax is nothing more than three federal employment taxes (social security, Medicare, and federal unemployment tax) that employers must pay if the wages of certain household workers exceed a threshold amount.
The nanny tax only applies to your employees. A worker is generally considered to be your employee if you directly supervise the work and you supply the tools or supplies necessary to do the job. If your worker came from an agency or runs his or her own business, the nanny tax may not apply. Employees can include baby sitters, nannies, housekeepers, gardeners, health aides, and other household workers.