Household employer (the nanny tax)
A two-income couple who employ a nanny in their home. The centerpiece is Schedule H: the Social Security, Medicare, and unemployment taxes a household employer owes on their own 1040.
Taxpayer facts
Who this is and what their year looked like.
Michael and Sarah are married, file jointly, and both work in Dallas, Texas. They employ a full-time nanny in their home and paid her $32,000 in cash wages during 2025.
Their own income is two W-2s. This return focuses on the household-employment taxes they owe as employers, reported on Schedule H and carried onto their 1040.
- NamesMichael J. Brennan & Sarah K. Brennan
- Dates of birthMichael 06/20/1986; Sarah 10/02/1988
- SSNsMichael 452-19-6630; Sarah 453-27-8891
- Ages (as of 12/31/2025)39 and 37
- OccupationsMichael, software engineer; Sarah, physician assistant
- Filing statusMarried filing jointly
- DependentsEthan M. Brennan (son) and Claire R. Brennan (daughter), both lived at home all year
- Ethan DOB / SSN04/17/2016 · 452-88-1204
- Claire DOB / SSN11/30/2019 · 452-88-3317
- Household employeeNanny paid $32,000 cash wages in 2025 (over the $2,800 threshold)
- Household employer EIN75-4471203 (required to file Schedule H and issue the nanny a W-2)
- Address6120 Prospect Ave, Dallas, TX 75206
- ResidencyTexas, full year (no state income tax)
- State unemploymentPaid timely, so the full FUTA credit applies
Source documents
Work from these the way you would a real client's paperwork. Everything is fictional.
Objectives
What a correct return should capture.
- Recognize that paying a household employee $2,800 or more in cash wages in 2025 makes you a household employer who owes employment taxes on Schedule H.
- A nanny is an employee, not an independent contractor: no 1099. The employer must get an EIN and give the nanny a W-2.
- Social Security and Medicare: 15.3% of the cash wages (you can withhold the employee's 7.65% half or pay it yourself).
- FUTA (federal unemployment): 6.0% on the first $7,000 of wages, cut to 0.6% because state unemployment tax was paid on time.
- Total the Schedule H tax; it flows to Schedule 2, line 9, and is ADDED to the couple's income tax on the 1040.
- Figure the couple's own income tax normally (two W-2s, MFJ standard deduction $31,500).
- Claim the Child Tax Credit for Ethan and Claire on Schedule 8812: $2,200 for each child under 17 with a valid SSN. Check AGI against the $400,000 MFJ phase-out threshold.
- Watch the ordering on the 1040: the Child Tax Credit reduces the income tax on line 22, then the Schedule H tax is added on line 23. A nonrefundable credit cannot offset household employment taxes.
- The Schedule H tax is not withheld from anyone's paycheck, so see how it changes the couple's refund or balance due.
- Note that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.