Do I owe US nanny tax on a British nanny who works only in London?

Generally no. US social security, Medicare and FUTA taxes apply to wages for employment, which the Internal Revenue Code defines as service within the United States, or service abroad by a US citizen or resident for an American employer. A non-US nanny working entirely in London falls outside both limbs, so on those facts no Schedule H is required. Keep records of her nationality and where she worked.

Do I have to register with HMRC if I employ a nanny in my own home?

Yes, where you hire the nanny directly and she is not self-employed or paid through an agency. GOV.UK says you must register as an employer, set up and run payroll even if you pay in cash, deduct her Income Tax and National Insurance, give payslips and a contract, pay at least the minimum wage and hold employers' liability insurance. You cannot ask her to become self-employed.

Can I claim the US child care credit for a UK nanny with no Social Security number?

Possibly. The Form 2441 instructions say that if you live abroad and your care provider is not required to have a US taxpayer identification number, you enter LAFCP in place of the number. You must still meet the other conditions: a qualifying child under 13, earned income after any Form 2555 exclusion, generally a joint return if married, and US tax for the credit to reduce.

Can I deduct my nanny's salary on my UK Self Assessment or my US Form 1040?

No. In the UK the salary is private household spending and has no place on a Self Assessment return, whether you are employed or run a business. In the US, IRS Publication 926 confirms household wages cannot be deducted on Schedule C or F. The only US route is the child and dependent care credit on Form 2441, which is capped and subject to several conditions.

Can I claim the Employment Allowance against employer National Insurance on a nanny?

Not for an ordinary nanny or housekeeper. GOV.UK lists someone employed for personal, household or domestic work among the employees who cannot be included in an Employment Allowance claim. The stated exception is a carer or support worker. A household therefore pays employer National Insurance at 15 percent on earnings above the 5,000 pound secondary threshold for 2026 to 2027 in full.

What happens for US tax if our UK nanny travels with us to the United States?

Services she performs within the United States count as employment for US social security, Medicare and FUTA purposes regardless of her nationality or yours. If wages for that US work reach the thresholds in IRS Publication 926, which for 2026 are 3,000 dollars in the year or 1,000 dollars in a quarter for FUTA, Schedule H and a Form W-2 need to be considered. Her permission to work there is a separate question.

US UK Tax Returns Preparation: Employing a Nanny in UK

US UK tax returns preparation changes in a specific and often overlooked way the moment an American family in London hires a nanny or housekeeper directly. The short answer is this: in the UK the family becomes an employer, with a PAYE scheme, payslips, employer National Insurance, pension duties and insurance to arrange, and none of that cost is a deduction on either parent's Self Assessment return. In the US the nanny's wages are not deductible either, US household employment taxes on Schedule H generally do not reach a non-US nanny whose work is done entirely in the UK, and the one place the cost can appear on Form 1040 is the child and dependent care credit on Form 2441.

Who is the employer when an American family hires a nanny in London?

A household employer is a private individual who hires someone to work in their home and is responsible for that person's pay, tax deductions and employment rights. The GOV.UK guidance at https://www.gov.uk/au-pairs-employment-law/nannies states the test plainly. You are usually considered the employer of a nanny, housekeeper, gardener or anyone else who works in your home if you hire them and they are not self-employed or paid through an agency. The same page adds that you cannot ask your employee to become self-employed. For a family used to settling domestic help by bank transfer, that sentence is the important one. Employment status follows the facts of the arrangement, and a full-time nanny working set hours under the parents' direction is an employee.

What does HMRC require from a family that employs a nanny?

The GOV.UK guidance on employing someone to work in your home divides the obligations into what the employee is entitled to and what the employer must do. Taken together, the family must:

Register as an employer with HMRC and set up and run payroll, or pay someone to run it, even where the nanny is paid in cash.
Deduct and pay over the employee's Income Tax and National Insurance, and pay employer National Insurance on top.
Give the nanny an employment contract and a payslip for each pay period.
Pay at least the National Minimum Wage and keep within the maximum weekly working hours.
Provide paid holiday and a workplace pension where the employee is eligible.
Pay statutory benefits such as maternity pay and sick pay when they fall due.
Hold employers' liability insurance.
Check that the person has the right to work in the UK before they start.

Two of these catch wealthy households more than the others. The first is agreeing a net weekly figure. Tax and National Insurance are calculated on gross pay, so a fixed take-home promise leaves the family carrying every change in the nanny's tax code. We ask clients to rewrite any net agreement as a gross salary before the first payslip. The second is the minimum wage for long-hours roles. The employer rates page at https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027 shows a National Living Wage of 12.71 pounds an hour for workers aged 21 and over from 1 April 2026. A generous salary can still fall short per hour once evenings and travel with the family are counted, so hours need to be recorded.

How much does a nanny cost once employer National Insurance is added?

Employer National Insurance is a charge on the employer, calculated on the employee's earnings above the secondary threshold, and it is paid in addition to the gross salary. For the 2026 to 2027 tax year the GOV.UK rates page gives a secondary threshold of 5,000 pounds a year (96 pounds a week) and an employer rate of 15 percent for the standard category. On the employee's side, the personal allowance and the primary threshold are both 12,570 pounds a year, the basic rate of Income Tax is 20 percent on the next 37,700 pounds in England, Wales and Northern Ireland, and employee National Insurance is 8 percent between the primary threshold and the upper earnings limit of 50,270 pounds. An employer pension contribution for an eligible employee, insurance and the cost of running the payroll come on top; we give no pension percentages here because we did not confirm the current figures on an official page for this article.

Can a domestic employer claim the Employment Allowance?

No, in the ordinary case. The Employment Allowance is a relief that lets eligible employers reduce their employer National Insurance bill, and the rates page puts it at 10,500 pounds for 2026 to 2027. The eligibility page at https://www.gov.uk/claim-employment-allowance/eligibility frames the relief around businesses, charities and public bodies, and lists among the employees who cannot be included in a claim someone you employ for personal, household or domestic work, like a nanny or gardener. The stated exception is a carer or support worker, for example someone employed to care for a person with a mental or physical disability.

This matters to business owners in particular. We have seen a nanny placed on the payroll of the family company so that the company's Employment Allowance absorbs the employer National Insurance and the salary is claimed as a business cost. A nanny who works in the family home looking after the directors' children is not working for the company, and that arrangement misdescribes the employment in the company's records and on both countries' returns. The household needs its own PAYE scheme and bears the employer charge in full.

Does the nanny's salary reduce the parents' UK tax bill?

No. Paying a nanny is private household expenditure. The GOV.UK guidance on employing someone in your home lists duties and no income tax relief for the wages, and the cost does not belong on a parent's Self Assessment return as an expense, whether the parent is employed, a partner in a firm or a company director. The PAYE scheme is a separate reporting line between the household and HMRC, and it runs alongside Self Assessment without feeding into it.

Can a high-earning family use Tax-Free Childcare for a nanny?

Tax-Free Childcare is a UK government scheme in which parents pay into an online childcare account and the government adds a top-up. GOV.UK describes it at https://www.gov.uk/tax-free-childcare in these terms. For every 8 pounds paid in, the government adds 2 pounds, up to 500 pounds every three months for each child, which is up to 2,000 pounds a year, with higher limits for a disabled child. The child must be 11 or younger, or 16 or younger if disabled. The account can pay a registered childminder, nanny, playscheme, nursery or club, and the provider must be signed up to the scheme. The nanny guidance adds that an eligible family can use the account to pay a nanny's Income Tax and National Insurance.

Two limits apply to readers of this site. First, a privately hired nanny only qualifies if she is registered or approved as the scheme requires. Second, the scheme carries income conditions for each parent, including an upper ceiling that senior bankers, partners and business owners commonly exceed. We have not reproduced the ceiling because the page we opened for this article does not state it; check the eligibility section of the GOV.UK guide against each parent's adjusted net income before opening an account.

Do US household employment taxes apply to a nanny working in London?

US household employment taxes are the social security, Medicare and federal unemployment (FUTA) taxes that a household employer reports on Schedule H with Form 1040. IRS Publication 926 for 2026, at https://www.irs.gov/publications/p926, says you withhold and pay social security and Medicare taxes if you pay cash wages of 3,000 dollars or more in 2026 to any one household employee, and you pay FUTA tax if you pay total cash wages of 1,000 dollars or more in any calendar quarter of 2025 or 2026 to household employees. The rates it gives are 6.2 percent social security and 1.45 percent Medicare for each of employer and employee, with FUTA at 6.0 percent of the first 7,000 dollars of cash wages before any credit.

Publication 926 is written for households in the United States and, in the text we reviewed, does not address a household abroad. The answer sits in the statute. Both taxes are charged on wages for employment, and employment is a defined term. For social security and Medicare, section 3121(b) of the Internal Revenue Code, at https://www.law.cornell.edu/uscode/text/26/3121, defines employment as service performed by an employee for the person employing him, irrespective of the citizenship or residence of either, within the United States, or service performed outside the United States by a citizen or resident of the United States as an employee for an American employer. For FUTA, section 3306(c), at https://www.law.cornell.edu/uscode/text/26/3306, follows the same pattern, with the overseas limb confined to a citizen of the United States working for an American employer. In both sections an American employer includes an individual who is a resident of the United States.

Apply that to the common case. A British or other non-US nanny who performs all of her services in London is not working within the United States, and she is not a US citizen or resident working abroad. On the wording of those definitions her services are not employment for these taxes, so there are no social security, Medicare or FUTA wages to report and, on those facts alone, no Schedule H. This is our reading of the definitions cited, not a published IRS ruling on London households, and we record the supporting facts on file each year.

When does the US answer change?

The definitions turn on a small number of facts, and each can change during the year without the family noticing. We review these three before deciding that Schedule H is not required:

The nanny works in the United States. Service performed within the United States is employment irrespective of the citizenship or residence of either party. A nanny who accompanies the family for a long summer at a US home is performing services in the United States for that period, and the Publication 926 thresholds should be tested against the wages for that work.
The nanny is a US citizen or US resident. The overseas limb of the social security definition then becomes relevant, and the question shifts to the employer.
The employing parent is a resident of the United States. The statute frames an American employer by residence, not citizenship. A family settled in London will often fall outside it, but a parent who keeps a US home and splits the year needs the point examined on the facts.

Where US employment taxes do apply for part of a year, the family needs an employer identification number, and Publication 926 confirms that Schedule H and a Form W-2 follow once the wage tests are met. US state obligations and the worker's permission to work in the United States are separate questions outside the tax return. A social security agreement between the two countries can also affect which system covers a worker who moves between them; we do not rely on it for the ordinary London case.

Can you claim the child and dependent care credit for a UK nanny on Form 2441?

The child and dependent care credit is a US income tax credit for part of the cost of care that allows a taxpayer to work or look for work. Nothing in the Form 2441 instructions limits it to care given in the United States. The 2025 instructions at https://www.irs.gov/instructions/i2441, the latest edition available as we write, deal with the overseas case directly: if you are living abroad, your care provider may not have, and may not be required to get, a US taxpayer identification number, and in that case you enter LAFCP, which stands for Living Abroad Foreign Care Provider, in the space for the provider's number. The instructions also say a taxpayer shows due diligence by getting and keeping the provider's completed Form W-10. For a UK nanny we keep her name, address and the payroll records in place of a US number.

The main conditions and limits in those instructions are these. A qualifying person includes a qualifying child under age 13 whom you can claim as a dependent, and a child who turns 13 in the year counts for the part of the year before the birthday. Qualifying expenses are capped at 3,000 dollars for one qualifying person and 6,000 dollars for two or more. The credit is a percentage of the capped expenses, and the percentage falls as adjusted gross income rises, so a high-earning household receives the lowest percentage. Generally, married persons must file a joint return to claim the credit. The credit is limited by the tax shown on the return, so it cannot create a refund where there is no US tax to reduce.

The instructions say you can include your share of the employment taxes paid on wages for qualifying care, a statement written with US employment taxes in mind. In the returns we prepare, the nanny's gross wages alone exceed the cap many times over, so nothing turns on whether UK employer National Insurance is added. A nanny who also keeps house is the more practical issue, because the expense must be for care. Limits and percentages can change from one year to the next, so the 2026 instructions should be read when the IRS releases them.

How does the foreign earned income exclusion affect the credit?

It can remove the credit entirely. The credit is limited by earned income, and the Form 2441 instructions direct you to subtract any amount excluded as foreign earned income, including any housing exclusion, on Form 2555 when working out earned income for this purpose. A parent whose whole salary is excluded has no earned income left for the credit. A parent who claims foreign tax credits on Form 1116 instead keeps that earned income in the calculation.

Keeping the earned income does not guarantee a benefit. UK income tax on a London salary usually exceeds the US tax on the same income, so the foreign tax credit often brings the US liability on that income to nil, and a credit that only reduces tax has nothing to work against. Form 2441 tends to produce a real saving where there is US tax that foreign tax credits do not cover, for example on US-source investment income. The joint return rule is the other obstacle: an American married to a non-US spouse who files as married filing separately will generally not qualify, and electing to file jointly brings the spouse's worldwide income into the US return, a decision far larger than a childcare credit.

How do employer childcare benefits and UK top-ups appear on the US return?

Part III of Form 2441 deals with dependent care benefits provided by an employer. The 2025 instructions state that the maximum amount that can be excluded from income through a dependent care assistance program is 5,000 dollars, or 2,500 dollars if married filing separately, and that excluded benefits reduce the expenses on which the credit can be claimed. That exclusion belongs to a qualifying US program. A childcare subsidy, backup-care allowance or voucher from a UK employer is not automatically such a program, and where it is not, we report it as part of the parent's compensation in dollars and treat any care actually paid for as an expense in the usual way. The government top-up in a Tax-Free Childcare account is a different item, and the IRS materials we reviewed do not mention it. We count as the family's expense only what the family itself paid into the account, and record that on file.

Worked scenario: US UK tax returns preparation for a London family with a nanny

The following is an illustration only. The people and figures are invented, the UK figures use the 2026 to 2027 rates cited above, and dollar amounts use an assumed exchange rate of 1.30 dollars to the pound, which is an assumption and not a published rate. Daniel is a US citizen and a managing director at an investment bank in London. His wife Priya is a British citizen who runs her own company. They have two children aged 3 and 6 and employ a British nanny, Hannah, directly on a gross salary of 42,000 pounds for a 50-hour week.

On the UK side the household registers as an employer and runs a monthly payroll. Employer National Insurance is 15 percent of 37,000 pounds (42,000 less the 5,000 secondary threshold), which is 5,550 pounds. Hannah's own deductions, on a standard tax code with no other income, are Income Tax of 20 percent on 29,430 pounds, which is 5,886 pounds, and employee National Insurance of 8 percent on 29,430 pounds, which is about 2,354 pounds. Her 2,600 annual hours work out at roughly 16.15 pounds an hour, above the 12.71 pounds minimum, though the margin would narrow quickly with unrecorded evening hours. The family's cost is 47,550 pounds before pension contributions and insurance, with no Employment Allowance and no entry on either parent's Self Assessment return. Both parents' incomes are above the Tax-Free Childcare ceiling, so no account is opened.

On the US side, Hannah is not a US citizen or resident and works only in London, so on the definitions in sections 3121(b) and 3306(c) there are no US household employment taxes and no Schedule H. The wages are not deductible. For the credit, the cost at the assumed rate is about 54,600 dollars of wages, far above the 6,000 dollar cap for two children. Daniel files as married filing separately because Priya is not a US taxpayer, so under the general rule in the instructions the credit is not available. If the couple were both US citizens filing jointly and claiming foreign tax credits, Form 2441 would be completed with LAFCP in the provider number box, and the credit would then be limited to whatever US tax remained after those credits.

Now change one fact. The family spends six weeks at a house in Connecticut each summer and brings Hannah. Her pay for that period is about 4,846 pounds, roughly 6,300 dollars at the assumed rate. Those services are performed within the United States, so they fall within the definition of employment regardless of anyone's nationality, and the amount is above both the 3,000 dollar annual and 1,000 dollar quarterly tests in Publication 926. Schedule H, an employer identification number and a Form W-2 now need to be considered for that portion, alongside her UK payroll, which continues unchanged.

What records and exchange rates should the family keep?

The UK payroll produces most of what the US return needs, provided it is kept in a form that can be read two years later. We ask for the following each year:

The employment contract showing gross pay, hours and duties, with any split between childcare and housekeeping.
Twelve months of payslips and the year-end payroll summary, on a calendar-year basis for the US return as well as the UK tax year.
The nanny's full name, address, nationality and residence, and a completed Form W-10 or equivalent written record supporting the LAFCP entry.
A travel calendar showing every day the nanny worked outside the UK, especially in the United States.
Bank statements showing the salary payments and payments to HMRC, with the account they came from.
The exchange rate source used, applied consistently across the whole US return and not chosen item by item.
Evidence of employers' liability insurance, the right to work check and pension enrolment or opt-out.

What goes wrong most often?

Five patterns account for most of the corrections we make. The nanny is treated as self-employed because she invoices. Pay is agreed net, and the family later meets an unexpected tax underpayment. The nanny is put through the family company's payroll. Schedule H is ignored in a year when the nanny spent a long period working in the United States. And Form 2441 is either omitted in a year when it would have reduced US tax, or claimed on a married filing separately return or against income fully excluded on Form 2555, where it cannot stand. The rates and limits in this article come from the UK 2026 to 2027 employer rates, IRS Publication 926 for 2026 and the 2025 Form 2441 instructions, and each should be rechecked against the official page for the year being filed.