What Is the Cost of a Nanny in 2025? A Complete Breakdown for Families

Hiring a nanny is more than offering a wage—it's about building a compliant, respectful working relationship. When families ask, “Can I afford a nanny?”, our answer is: Start with your annual budget and work backwards to determine what you can comfortably and legally offer.

Let’s break down how to do that using a $75,000/year total nanny budget example.

Step 1: Start with Your Annual Budget

Let’s say your total budget for nanny care is $75,000 per year. This amount needs to cover:

• Gross wages (including overtime pay)
• Employer-paid taxes
• Required insurances
• Any nanny agency search and vetting fees
• Payroll service
• Benefits like PTO, sick leave, or reimbursements

Step 2: Subtract Payroll & Tax Service

Household employers are responsible for:

• Withholding and remitting the nanny’s taxes (generally federal and state income taxes and the employee's share of FICA taxes)
• Paying the employer share of FICA (Social Security & Medicare)
• Paying unemployment insurance contributions (both federal and state)
• Record keeping such as issuing pay stubs, W-2s, and tax filings

You can handle this yourself, but it’s a time-intensive process. The IRS estimates it takes about 60 hours per year to manage household employment taxes manually.

Most families prefer to outsource to a payroll provider like HomeWork Solutions, which automates paydays, tax filings, and compliance from your nanny’s first day of work on.

Estimated cost: $1,200/year
Remaining Budget: $73,800

Step 3: Subtract Agency Placement Fee (If Applicable)

Using a reputable nanny agency can save you time and stress by thoroughly vetting candidates, handling background checks, and matching you with professionals who meet your family’s unique needs. If you’re using a professional nanny placement agency, expect a fee of 10–20% of the nanny’s annual salary. If you’re seeking a specialized nanny (such as a newborn care specialist or private educator), the percentage may be higher. 

Example: 15% of $60,000 salary = $9,000
Remaining Budget: $64,800

Step 4: Estimate Workers’ Compensation Insurance

Workers’ compensation insurance is mandatory in many states, and it is always a smart way to protect both you and your nanny. It covers medical expenses and lost wages if your nanny is injured on the job.

A good estimate: one week of gross pay per year.

Weekly wage estimate: $1,100
Annual premium: ~$1,100
Remaining Budget: ~$63,700

🔍 Not sure if your state requires it? Check state-by-state rules here.

Step 5: Estimate Employer Taxes (10–12% of Gross Wages)

As a household employer, you’re responsible for taxes that average 10–12% of your nanny’s gross wages. These include:

• Employer share of FICA taxes
• Federal Unemployment (FUTA)
• State Unemployment (SUTA)

Some cities and states also have additional taxes. To find out how much of your budget can go toward wages, divide the remaining amount by 1.12:

$63,700 ÷ 1.12 ≈ $56,875 available for gross wages
Employer taxes: ~$6,825

Step 6: Calculate Hourly Wage (Including Overtime)

Assume your nanny works 45 hours/week, year-round:

• 40 regular hours/week → 2,080 hours/year
• 5 overtime hours/week → 260 hours/year (this will be paid at 1.5x regular rate of pay)
• Weighted total: 2,470 hours (260 x 1.5 + 2,080)

To calculate pay:

$56,875 ÷ 2,470 ≈ $23/hour regular rate
Overtime rate: $34.50/hour ($23 x 1.5)
Weekly pay: ~$1,105 gross estimate

This keeps you within budget while offering a legally compliant wage.

Step 7: Plan for Benefits

Providing benefits helps you attract and retain great caregivers—and some benefits may be legally required or offer tax advantages.

Benefits to Consider:

• Paid vacation (2–3 weeks/year)
• Sick leave (Required in some states, counties, or cities)
• Paid holidays
• Health insurance reimbursement
• Parking and/or Transit reimbursement
• Education reimbursement
• Cell phone reimbursement 

Many of these benefits are tax-advantaged if you follow a few simple rules set by the IRS—meaning neither you nor your nanny pays payroll taxes on the value.

Final Budget Recap (Based on $75,000 Annual Budget)

Wrapping It Up

Working backward from your annual budget allows you to build a realistic and fully compliant nanny compensation plan. You'll avoid surprises, offer a competitive wage, and stay in full control of your finances—all while creating a respectful and sustainable employment relationship.

Want help tailoring this to your unique schedule or benefits package? Contact our expert team—we’re happy to help you run the numbers.

Since 1993, HomeWork Solutions has helped thousands of families manage nanny payroll and tax compliance with confidence. We're here to take the guesswork out of household employment so you can focus on what matters most: your family.