Figures relate to tax year 2026 (US) · 2026-27 (UK)
You find a nanny, agree a weekly figure, and shake hands. Nobody mentions that you have just become an employer.
Nanny tax in Britain means running a payroll from your kitchen table, and the American return gives you very little back for it.
The two systems point in opposite directions here.
Key takeaways
- Employing a nanny at home makes you an employer here.
- You need a payroll scheme and real-time reporting.
- Employer contributions and pension duties come with it.
- The agreed figure is almost always quoted net, not gross.
- American household employment rules do not follow you abroad.
- The dependent care credit needs a provider tax number.
- A British nanny has no reason to hold one.
- A nursery or childminder is usually simpler.
What is the nanny tax in Britain?
Not a separate tax at all, but the ordinary employer duties applied to a household. According to GOV.UK guidance on employing staff, you must operate payroll and report each payment. So the duty is paperwork rather than a new charge.
Our guide to PAYE coding notices covers payroll codes.
The duty is the paperwork, not a new tax.
What do you actually have to do?
Register as an employer, run payroll each pay day, report in real time, and pay over the deductions. You also check pension being enrolled and hold employer insurance. Most families use a specialist payroll provider.
Our guide to shadow payroll covers running payroll.
A nanny tax payroll provider costs very little.
What each side gives you
| Item | UK | US |
|---|---|---|
| Payroll duty | Yes | Not for UK staff |
| Employer contributions | Payable | None |
| Pension being enrolled | Often required | None |
| Dependent care credit | No equivalent | Needs a provider number |
| Tax-free childcare | Available | No effect |
| Deduction for the cost | None | None |
Why does gross and net matter so much?
Because nannies usually negotiate a take home figure rather than a salary. Agreeing a net wage means you absorb every tax change for them. So a figure that sounded affordable can rise without you agreeing to anything.
Our guide to the personal allowance taper covers the bands.
Agree a gross figure and nanny tax stays predictable.
What goes wrong with a net deal?
If the nanny has a second job or a student loan, their code changes and your cost moves. You carry a risk you cannot see or control. So the contract should state gross pay with deductions coming out of it.
Our guide to registering for self assessment covers filing.
A second job can raise your bill.
A worked example
Take an illustrative case. An American couple in London agreeing £600 a week take home with their nanny.
Once tax, employee contributions and employer contributions are added, the real cost runs well above £800 a week.
Britain gives them no deduction at all for any of it, because childcare is private spending.
America offers a credit in principle, which then fails for want of a tax number the nanny does not have.
Does the American nanny tax apply?
Generally not, because household employment taxes attach to employment within the United States. A nanny working in your London home is outside that. So you do not file the American household employment schedule.
Our guide to US expat tax basics covers the groundwork.
American nanny tax at least does not follow you here.
Can you claim the dependent care credit?
In principle yes, and in practice it usually fails. According to IRS guidance on the credit, you must identify the care provider with a taxpayer number. A British nanny has no reason to hold one.
Our guide to the child tax credit abroad covers credits.
Without a provider number the credit fails.
Could the nanny get a number?
Only through an application they have no reason to make and no duty to complete. Most will decline, and that is reasonable. So treat the credit as unavailable unless your nanny happens to be American.
Our guide to ITIN applications covers numbers.
You cannot require them to apply.
What if the nanny is American?
Then the credit becomes realistic, because they already hold a number. Their own filing dutys also continue while they work here. So an American nanny changes the answer for both of you.
Our guide to the accidental American covers who is caught.
An American nanny unlocks the credit.
Does the exclusion affect the credit?
It does, and this catches families who clear the first hurdle. The credit needs earned income, and income you exclude does not count as earned for it. So claiming the exclusion can switch the credit off.
Our guide to Form 2555 and the exclusion covers the claim.
Excluded income is not earned income here.
Should you use the credit route instead?
Sometimes, because using the foreign tax credit leaves your income counted as earned. That keeps the childcare credit alive where a provider number exists. So the two decisions have to be modelled together.
Our guide to income baskets on Form 1116 covers the credit.
Model the two reliefs side by side.
What about tax-free childcare here?
The British scheme tops up what you pay into an account for registered childcare. A nanny must be registered for it to apply. So check their registration before counting on the help.
Our guide to tax-free childcare covers the scheme.
Registration is the condition that matters.
Does it affect your American return?
The top up is British government support rather than your income, so it generally sits outside the American return. It does reduce what you paid, which matters if you ever claim the credit. So keep the account statements.
Our guide to UK state benefits covers support payments.
Support reduces the cost you can count.
What about pension being enrolled?
A nanny earning above the threshold must usually be enrolled in a workplace pension, with you contributing. That is a real cost on top of the wage. So budget for it before agreeing the rate.
Our guide to employer pension contributions covers schemes.
Pension cost sits on top of the wage.
Is an agency any easier?
An agency that employs the nanny itself removes your employer duties entirely, because they run the payroll and carry the liability. An agency that merely introduces somebody does not, so read carefully which of the two services you are actually buying.
Our guide to recruitment agency work covers agencies.
Introduction and employment are different services.
Can a nanny be self-employed?
Very rarely, because you control the hours, the place and the work. A nanny sharing between two families may sometimes qualify. So treat self-employment as the exception rather than a convenience.
Our guide to the IR35 rules covers status.
Control points to employment almost always.
What about a nanny share?
Two families sharing one nanny usually means two employers with separate payrolls. Each runs its own scheme on its own share. So a share halves the cost and doubles the paperwork.
Our guide to joint accounts for couples covers shared set-ups.
Two employers, two payrolls, one nanny.
Is a nursery simpler for nanny tax purposes?
Far simpler, because a nursery is a business you buy from rather than somebody you employ. No payroll, no pension, no employer duties. So the comparison is about more than the headline hourly rate.
Our guide to the high income child benefit charge covers family charges.
Buying a service beats employing a person.
What about a live-in nanny?
Providing housing raises a benefit in kind question on top of everything else. Some household set-ups are exempt and others are not. So get the housing position confirmed before they move in.
Our guide to benefits in kind covers provided housing.
Live-in set-ups need checking first.
Does an au pair work differently?
An au pair on a genuine cultural exchange with pocket money sits in a different category. Pay them a real wage for real hours and they become an employee. So the label does not protect you.
Our guide to study abroad rules covers visitors.
Real hours and real pay mean employment.
What if you get the nanny tax wrong?
Unpaid deductions become your liability rather than the nanny's, with interest and penalties attached. Families who paid cash for years face the worst of it. So fixing it early is far cheaper than waiting.
Our guide to HMRC enquiries covers investigations.
Unpaid nanny tax lands on the employer, not the nanny.
What records should you keep?
The employment contract with gross pay stated, payroll records for every pay day, pension letters, and proof of what you actually paid. Those four answer almost every question that arises later.
Our guide to exchange rates on a US return covers conversion.
Keep the contract with the payroll records.
Why do families get caught?
Because nothing about hiring a nanny feels like starting a business. In our practice families discover the duties when something goes wrong rather than at the start. The rules apply from the first pay day regardless.
Our guide to a second opinion covers reviews.
Nanny tax duties start with the first payment.
When should you sort this out?
Before the first pay day, because registering afterwards means reporting late from the very start. Setting it up properly takes an afternoon with a payroll provider, while unwinding years of cash payments takes a lot longer and costs a great deal more.
Our guide to choosing a US-UK tax accountant covers getting help.
Set it up before the first payment.
How much does a nanny really cost?
Far more than the weekly figure suggests. On a £600 take home deal the true cost runs past £800 once everything is added. So compare that number against a nursery place, not the headline one.
Our guide to US filing thresholds covers the limits.
The real nanny tax cost is about a third higher.
Is any of it deductible?
No, in either country, because childcare is personal spending. Britain gives relief through a separate scheme instead. America gives a credit rather than a deduction, and only in narrow cases.
Our guide to head of household covers filing status.
Neither country lets you deduct it.
What about a maternity nurse?
A short engagement for a few weeks after a birth still looks like employment. The duration does not change the status test. So even a six week booking needs a payroll.
Our guide to UK maternity pay covers parental pay.
Short bookings are still employment.
What about holiday and sick pay?
An employee is entitled to paid holiday and statutory sick pay in the normal way. Families forget this until the first request arrives. So build both into the budget from the start.
Our guide to redundancy pay covers ending employment.
Holiday entitlement comes with the job.
What happens when they leave?
You issue the leaving paperwork and close the payroll record properly. Longer service can bring notice and redundancy rights. So an ending needs as much care as the hiring did.
Our guide to UK settlement agreements covers exits.
Close the payroll record properly.
Does this affect your own residence?
Not directly, though becoming an employer is one more tie to Britain. Residence turns on days and connections rather than payroll. So it is a signal rather than a test in itself.
Our guide to the UK statutory residence test covers residence.
It is a tie, not a test.
What if you move home mid-year?
The employment continues wherever in Britain you live, with the same scheme running. A move abroad ends it and brings its own duties. So an international move is the one that needs planning.
Our guide to leaving the UK covers moving on.
A move abroad ends the employment.
Who should ask about nanny tax first?
Anybody about to agree a net weekly figure, and anybody who has been paying cash. A family already on a payroll scheme has the hard part done. The gaps are where the cost sits.
Our guide to an enrolled agent or a CPA covers advisers.
Net deals and cash deals need a look.
Does nanny tax change if you both work?
Not the employer duties, which apply whatever your own situation. It matters for the American credit, because that needs earned income from both spouses. So a single earner household often fails on that test alone.
Our guide to a non-resident alien spouse covers couples.
The credit needs both of you earning.
What if one spouse is British?
The employer duties still fall on whoever employs the nanny. The American questions only reach the American spouse. So the household position splits between the two of you. A payroll provider will confirm the position in a few minutes.
Our guide to the marriage allowance covers mixed households.
Only the American spouse meets the credit rules.
How to handle nanny tax from both sides
- Agree a gross wage in writing, never a take home figure.
- Register as an employer before the first pay day.
- Use a household payroll provider to run it.
- Budget for employer contributions and pension on top.
- Check whether the nanny is registered for the British scheme.
- Expect the American childcare credit to fail without a provider number.
- Model the exclusion against the credit before choosing.
- Keep the contract and payroll records together.
Mistakes and penalties we see with nanny tax
The first is agreeing a net weekly figure, which hands the nanny's tax position straight onto your budget.
The second is paying cash with no scheme at all, which makes the unpaid deductions your liability.
The third is claiming the American childcare credit without a provider number to support it.
The fourth is claiming the exclusion and the credit together, when excluded income is not earned income.
How US UK Tax Accountants helps
We work out the real cost of the set-up first, because the quoted weekly figure is rarely the whole story.
Then we model whether any American relief survives. Our US federal returns service covers the American filing.
If you are about to employ somebody at home, get in touch before the first pay day.
Last reviewed 6 November 2026. This article is general information and not personal tax advice.
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Official guidance from the IRS, FinCEN and GOV.UK. Thresholds and rates on those pages are updated annually — check the current tax year before relying on a figure.
