A nanny tax—also known as a household-employment tax—is not a legal term, but refers to a federal social security tax imposed on the employer of a domestic employee (such as a nanny) if the employer pays the employee more than a specified amount in total wages in a year.
In Texas, as in all states, the 'nanny tax' refers to federal tax obligations that apply to individuals who employ household employees, such as nannies. If an employer pays a nanny or other household employee $2,300 or more in 2021 (this threshold may change annually for inflation), the employer is required to withhold and pay Social Security and Medicare taxes. These are often referred to as FICA taxes. Additionally, if an employer pays total wages of $1,000 or more in any calendar quarter to household employees, they must also pay federal unemployment tax (FUTA). Employers are not required to withhold federal income tax unless both the employer and the employee agree to do so, but the employee may still be responsible for paying their own income taxes. It's important to note that these requirements are based on federal law, and Texas does not have a state income tax, so there are no state-level nanny taxes. However, employers in Texas must still comply with federal tax obligations and may need to pay state unemployment taxes under the Texas Unemployment Compensation Act if certain conditions are met.
