Reviewed September 2026.
A nanny’s hourly wage is not the total bill. If you are the employer, add employer payroll taxes, possible workers’ compensation, paid time off, and agency fees. Daycare quotes look simpler (tuition + fees) but can hide registration, late pickup, and holiday closures that force backup care. Build both sides into annual dollars, then divide by months you actually need coverage.
Pre-birth savings pacing: Plan for childcare costs before the baby arrives. Keep the comparison inside a normal budget.
Side-by-side cost grid
| Cost line | Daycare / center | Nanny (household employer) |
|---|---|---|
| Base price | Monthly tuition | Gross wages (hours × rate, incl. overtime rules) |
| Employer payroll taxes | Usually none (you are a customer) | Social Security + Medicare employer share (~7.65% of wages) plus federal unemployment (FUTA) and state unemployment where required |
| Workers’ comp / disability | Included in center ops | Often required or strongly recommended by state; get a quote |
| Benefits / PTO | Center holidays (you still pay tuition) | Paid vacation, sick days, holidays you agree to |
| Backup when sick | Your problem on closure days | Nanny sick = you need backup or lost workday |
| Agency / placement | Rare | Placement fee often 10–15% of first-year wages (one-time) |
| Extras | Registration, supply fees, late pickup | Mileage, parking, guaranteed hours contracts |
IRS household-employer rules (Schedule H / nanny tax) change with wage thresholds; confirm current IRS Publication 926 before you hire. This page teaches the math shape, not your filing.
Worked example: 40 hours/week infant care
Assumptions for one metro ZIP (illustrative):
| Path | Inputs | Annual total (approx.) |
|---|---|---|
| Daycare tuition+fees | $1,800/month tuition + $200 registration + $150 supply fees | $1,800 × 12 = $21,600 + $350 fees = $21,950 subtotal |
| Nanny wages only | $25/hour × 40 hours × 52 weeks | $52,000 gross |
| Employer SS/Medicare (FICA) | 7.65% × $52,000 | ~$3,978 |
| Federal unemployment (FUTA) | Illustrative full state credit: $7,000 × 0.6% | ~$42 (credit reductions can raise this; confirm Pub 926) |
| State unemployment (SUTA) | Sample quote | ~$400 (state rates vary; get your quote) |
| Workers’ comp (sample) | Quote $800/year | $800 |
| Paid time off (10 days) | Already inside 52 weeks of paid wages if you pay when they are off | Do not add PTO wages a second time; still price replacement/backup care for those days separately |
| Agency fee (year 1) | 12% × $52,000 | $6,240 once |
| Backup care (both paths) | 10 days × $150 drop-in (illustrative) | $1,500 (price your own market) |
| Daycare all-in (same backup) | Tuition+fees subtotal + backup | $21,950 + $1,500 = $23,450 |
| Nanny year-1 all-in (this example) | Wages + FICA + FUTA + SUTA + WC + agency + backup | $64,960 |
| Nanny year-2+ all-in (no agency) | Wages + FICA + FUTA + SUTA + WC + backup | $58,720 |
| Nanny subtotal before FUTA/SUTA/backup | Wages + FICA + WC + agency | ~$63,018 year 1 / ~$56,778 year 2+ |
Daycare at ~$23.5k all-in (including the same $1,500 backup-care allowance) looks cheaper on cash than nanny year-1 $64,960. A nanny may still win on schedule fit (early drop-off, sick-child days at home). A nanny share splitting $52,000 wages 50/50 drops each family’s wage line to ~$26,000 before shared tax setup; put the tax split in writing.
How to run the comparison in one hour
- Collect 2 daycare and 1–2 nanny quotes with hours and overtime rules.
- Convert everything to annual dollars (tuition × 12; wage × weeks).
- Add 7.65% employer FICA, plus federal unemployment (FUTA), state unemployment, and workers’ compensation quotes.
- Add year-1 agency fees only to year 1.
- Price 10 backup days (drop-in care or grandparent travel) for both daycare and nanny paths, and label any total that still excludes backup care.
- Check cash runway: can emergency fund cover a 2-week gap if the nanny quits or the center closes?
Decision cues (not moral rankings)
| Lean daycare when… | Lean nanny when… |
|---|---|
| Total cash gap is >$15k/year and schedule fits center hours | You need nonstandard hours or care for a mildly sick child at home |
| You do not want household-employer paperwork | You will run payroll (Care.com HomePay, Poppins Payroll, or CPA) correctly |
| Backup care is easy (relative nearby) | Center waitlists miss your return-to-work date |
Track the chosen path in a simple net-worth / cash snapshot so tuition raises do not surprise you: Net worth snapshot. Park the sinking-fund surplus in a HYSA separate from emergency cash (Sinking funds vs emergency).
Educational only. Not tax, legal, or employment advice. Household-employer tax thresholds, state workers’ comp rules, and overtime laws vary; confirm with IRS Pub 926, your state labor department, and a tax professional before hiring.