What happens if I pay my nanny under the table?
Updated November 6, 2026 · For 2026 · General information, not tax or legal advice
Plenty of families pay a nanny in cash and never report it. It usually works until it does not. Here is what is actually at stake, without the scare tactics.
For you
- Back taxes, penalties and interest. If the arrangement surfaces, you owe both halves of Social Security and Medicare (15.3%), federal and state unemployment tax, failure-to-file and failure-to-pay penalties, and interest, for every open year. There is no statute of limitations on a return that was never filed.
- The usual trigger is your nanny, not an audit. A nanny who is let go files for unemployment. The state finds no wages reported, opens a case, and the IRS follows. An injury at your home leads to a workers' compensation claim with the same result.
- You lose the tax breaks. A dependent care FSA and the child and dependent care credit require a caregiver you report. Those are worth $1,500 to $3,000 a year for many families, which pays for most of the employer taxes.
- Public roles and background checks. Unpaid household taxes have ended several political appointments. Security clearances and some professional licenses ask the same question.
For your nanny
- No Social Security or Medicare credits for those years, which lowers their retirement and disability benefits permanently.
- No unemployment insurance when the job ends, which for a nanny is usually when the kids start school.
- No verifiable income for an apartment, a car loan, a mortgage or a visa.
- A tax problem of their own, since the income is still taxable to them.
What legal actually costs
The employer side is about 10% of gross wages: 7.65% Social Security and Medicare, 0.6% federal unemployment on the first $7,000, and state unemployment at a new-employer rate on a small wage base. For a $25-an-hour, 40-hour nanny that is roughly $5,000 a year. Run it for your state in the calculator.
The paperwork is a W-2 in January, Schedule H with your 1040, and a short state report each quarter. CareTab does the math, builds the stubs and pre-fills the forms for $14.99 a month. If you have been paying off the books and want to fix it, see catching up on nanny taxes.
Frequently asked
Is paying a nanny cash illegal?
Paying in cash is fine. Not withholding, reporting and paying the required taxes on those wages is not, once wages cross the $3,000 threshold.
How would the IRS ever find out?
Most often through the nanny: an unemployment claim, a workers' compensation claim, a dispute, or the nanny filing a return that reports the income. Divorce proceedings and background checks also surface it.
What does doing it legally actually cost?
About 10% of gross wages for the employer taxes. For a $50,000 nanny that is roughly $5,000 a year, partly offset by the child care credit or a dependent care FSA.
Pay your nanny legally for $14.99/month
Hours, paychecks with every federal and state tax computed, pay stubs, PTO, and a filing calendar with the figures pre-filled. 14-day free trial, no card needed.