The Pay Split
On the books or off, the same arrangement looks different depending on which side you're on.
Here's what each choice actually means in practice.
On The Books
Family
Cost
Pays 7.65% employer FICA on top of the hourly rate, before any other expense.
Taxes
Also owes federal and state unemployment tax, and workers' comp in most states.
Tax Credit
Can claim the Child & Dependent Care Tax Credit up to $600 for one child,
$1,200 for two or more. Only available on the books.
FSA
Can use a Dependent Care FSA up to $7,500 pre-tax in 2026.
Only available on the books.
Nanny
Take-Home
7.65% FICA withheld from every paycheck. No employer health insurance.
No 401k. Just smaller pay.
Social Security
Builds credits toward retirement, but at nanny wage levels,
the eventual benefit is modest.
Unemployment
Technically eligible, but capped low by the state.
Replaces a fraction of actual income.
Termination
At-will in most states. No notice required. No severance by law.
On or off books, same reality.
Verifiable Income
W-2 makes it easier to rent an apartment, apply for a loan,
or prove employment history.
Off The Books
Family
Savings
No employer payroll taxes. Lower immediate cost per hour.
Tax Credit Lost
Loses the Child & Dependent Care Tax Credit and FSA benefit entirely.
Off the books means no deductions.
Legal Risk
No liability coverage if something goes wrong. IRS penalties if caught,
back taxes plus up to 100% penalty on top.
Nanny
Take-Home
More money in hand. No FICA withheld. The difference can be
meaningful week to week.
Healthcare
Reported income stays low, Medicaid eligibility may remain intact.
On the books, higher reported wages can push you out of Medicaid and
into marketplace insurance you can't afford.
HRA Note
Some families offer an HRA instead of insurance. It only reimburses
after you've already paid for a plan, which is expensive regardless.
No Safety Net
No unemployment if let go. No Social Security building.
No verifiable income history.
True for both, on or off the books: At-will employment.
No required notice. No severance. No employer-sponsored health insurance or
retirement plan. The formal system was not built with household workers in mind.
This guide is for informational purposes only. Tax rules vary by state and
individual situation. Consult a tax professional for advice specific to your
circumstances.
Caregiver Experience
Disclosure Guide
Pregnant or doing IVF while working in childcare? Before you say anything, read this free decision guide to think through your timing, options, and boundaries; professionally and personally.
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Parent Perspective
Coping Toolkit
Parenting is never one-size-fits-all, but guilt often is. Let’s start rewriting that story. Learn these useful tips that help you tackle your guilt today.
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Job Market
Agency Picker
Not sure which nanny agency to choose? This tool lists available agencies so you can visit their websites and make an informed decision for yourself.
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