Daycare vs Nanny Cost: Is a Nanny Cheaper Than Daycare?
A nanny is cheaper than daycare only when the daycare bill for all your children is bigger than the nanny’s full cost as an employer - wages plus the employer’s payroll tax plus your other employer costs. Daycare is priced per child; a nanny is priced per household. So for one child, on the illustrative numbers below, daycare costs $18,350.00 a year ($1,529.17 a month) and a full-time nanny $59,697.01 ($4,974.75 a month), 3.3 times as much. The nanny only becomes the cheaper option at 4 children. Your local prices will move that line, but the shape of the comparison does not change.
None of the prices on this page are market prices for any area. They are the worked example from the calculator pack linked at the end, chosen to show the arithmetic. Put your own quotes in. If you run a home daycare, the provider’s side is worked through in how much to charge for home daycare.
The formulas
Daycare a year = weekly rate x weeks charged + yearly fees, for each child, less any sibling discount on the second and later children.
Nanny a year = weekly gross pay x weeks paid + employer Social Security and Medicare + other employer costs (unemployment tax, insurance, a payroll service).
Nanny share, your part = (the nanny’s weekly gross pay x weeks paid + employer tax + other costs) x your family’s share.
Childcare cost per month = the yearly figure / 12. Spreading the year over twelve months keeps fees and any weeks charged during closures in the monthly number, instead of quoting only the weekly rate.
The line a daycare bill never shows is the employer tax. If you pay a household employee $3,000 or more in cash wages in 2026, you owe the employer’s half of Social Security and Medicare on those wages: 6.2% plus 1.45%, 7.65% in all (IRS Publication 926, 2026). The nanny’s own 7.65% is withheld from the wage, not added on top of it.
Worked example: daycare vs nanny cost for one child
Illustrative inputs, not market prices:
- Daycare: $350 a week, charged for 52 weeks, plus $150 of registration and yearly fees.
- Nanny: $22 an hour for 45 hours a week - 40 regular hours and 5 paid at 1.5 times the rate - which is $1,045.00 a week, paid for 52 weeks, plus $1,200 a year of other employer costs. Whether overtime applies to your nanny, and at what rate, is set by federal and state law, so check before you copy this.
- Nanny share: the nanny is paid $1,200 a week in total and your family pays 50%.
- One parent at home: the second earner’s illustrative $55,000 salary, after Social Security and Medicare, income tax at illustrative effective rates of 15% federal and 4% state, and $4,200 a year of commuting and work costs that would also go away.
What the nanny costs you as an employer:
| Step | A year |
|---|---|
| Wages: $1,045.00 a week x 52 weeks | $54,340.00 |
| Employer Social Security, 6.2% | $3,369.08 |
| Employer Medicare, 1.45% | $787.93 |
| Other employer costs (illustrative) | $1,200.00 |
| Total cost to you as the employer | $59,697.01 |
That is 9.9% on top of the wages, or $25.51 for each hour of care. Now all four options side by side:
| Option | A year | A month |
|---|---|---|
| Daycare | $18,350.00 | $1,529.17 |
| Nanny share, your 50% | $34,186.80 | $2,848.90 |
| One parent at home (take-home given up) | $36,142.50 | $3,011.88 |
| Full-time nanny, with employer costs | $59,697.01 | $4,974.75 |
Daycare is the cheapest of the four here, and the full-time nanny the most expensive - $41,347.01 a year more than daycare. In this example the nanny even costs $23,554.51 a year more than the take-home pay the second earner would give up by staying home. That does not make staying home the answer: it gives up retirement savings, Social Security credits and career years that the table does not count. It does show how far apart the options can sit once every line is in.
Nanny share vs daycare cost
Splitting a nanny with another family brings your part down to $34,186.80 a year in this example, but that is still more than one child in daycare. What a share buys is the same thing a nanny buys: care at home, on hours that suit the two families. Whether that is worth the difference over daycare is a question about your weeks, not a question the arithmetic can settle.
The insight: daycare is per child, a nanny is per household
Add a second child and the daycare bill nearly doubles; the nanny’s pay, in this example, does not change. With a 10% sibling discount on each additional child, every extra child adds $16,530.00 a year to daycare and nothing to the nanny:
| Children | Daycare (sibling discount) | Full-time nanny | Cheaper | By |
|---|---|---|---|---|
| 1 | $18,350.00 | $59,697.01 | Daycare | $41,347.01 |
| 2 | $34,880.00 | $59,697.01 | Daycare | $24,817.01 |
| 3 | $51,410.00 | $59,697.01 | Daycare | $8,287.01 |
| 4 | $67,940.00 | $59,697.01 | Nanny | $8,242.99 |
At 3 children, daycare is still cheaper by $8,287.01. At 4, the nanny is cheaper by $8,242.99. The table holds the nanny’s pay fixed. With more children you may agree a higher rate, so rerun the comparison with that rate before you decide.
So the question “is a nanny cheaper than daycare” is really two questions: how many children need care at the same time, and what does the nanny cost you as an employer, not just in wages. Compare the full employer cost against the daycare bill for all of them together.
The tax break is capped, so it favors the cheaper option
A Dependent Care FSA lets you pay for care with pay that is not taxed. For 2026 the limit is $7,500 a year (IRS Publication 15-B, 2026), and an employer’s plan may set a lower one. Every dollar run through it saves your marginal federal rate, your marginal state rate and 7.65% of Social Security and Medicare. At illustrative marginal rates of 22% federal and 4% state, that is 33.65% of each dollar, so the full $7,500 saves $2,523.75 a year.
Daycare, the nanny share and the nanny each cost more than the limit, so the saving is the same $2,523.75 whichever one you choose. That is 13.8% of the daycare bill but only 4.2% of the nanny’s. The tax break does not close the gap between them. Expenses paid through the FSA cannot also be claimed for the Child and Dependent Care Credit, so compare the two for your household.
How these were calculated
Daycare is the weekly rate times the weeks charged plus fees, with the sibling discount taken off each additional child’s weekly rate. The nanny is weekly gross pay (regular hours at the rate, overtime hours at the rate times the multiplier) times weeks paid, plus the employer’s 6.2% Social Security and 1.45% Medicare on those wages, plus other employer costs. The nanny share is the same calculation on the share’s pay, times your family’s share. Staying home is the second salary less Social Security and Medicare, income tax at the entered effective rates, and the work costs that go away. Monthly figures are yearly figures divided by 12. The FSA saving is the smaller of the bill and the limit, times the sum of the marginal rates and 7.65%.
The employer tax rates and the $3,000 household-wage threshold are from IRS Publication 926 (2026); the $7,500 FSA limit is from IRS Publication 15-B (2026). Every other input - daycare rates and fees, the nanny’s pay and hours, other employer costs, the salary and the tax rates - is illustrative, not a market price or a typical figure for any area. Every figure was computed twice, once by the code behind the calculator pack below and once by a separate implementation, and the two agree to the cent. None of this is financial, legal or tax advice; IRS Publication 926 and your state agency are the authorities on household employment.
If you want to run the same comparison on your own quotes - including what the second income adds after childcare, the effective hourly wage of the second job, several children and the total until school starts - the pack below has each of these as a linked spreadsheet with the formulas visible.