Hiring a Private Caregiver: Employer Rules, Taxes, and Tax Breaks

Hiring a private caregiver makes your household a domestic employer under federal law, which means wage rules, payroll taxes, and reporting obligations attach the moment your caregiver starts work. If you expect to pay $3,000 or more in cash wages during 2026, you owe Social Security and Medicare taxes on those wages and must file the same kinds of forms any other employer files.¹ The good news: household employers file annually rather than quarterly, and once you set the system up, running it takes little time each pay period.

Your Caregiver Is Almost Certainly an Employee

Before anything else, settle the classification question. The IRS applies a control test: if you set the schedule, direct the tasks, and decide how the work gets done, the caregiver is your employee, regardless of any contract labeling them an independent contractor.¹ A worker who sets their own hours, brings their own methods, and serves multiple clients might genuinely be a contractor. Very few in-home caregiving arrangements look like that. When in doubt, treat the caregiver as an employee. The cost of getting this wrong outweighs the cost of compliance by a wide margin.

What to Put in Place Before Day One

Employer Identification Number

Apply for an EIN through the IRS website using Form SS-4. You’ll enter your legal name and address and receive the number immediately if you apply online.² This number identifies your household on every tax form tied to your caregiver’s wages. You cannot file Schedule H or issue a W-2 without it.

Form I-9 Verification

Within three business days of the caregiver’s start date, they must complete Form I-9 and present either one document from List A (such as a U.S. passport or permanent resident card) or one document each from Lists B and C establishing identity and work authorization.³ Keep the completed form with your household records; you don’t send it anywhere.

Written Employment Agreement

A written agreement isn’t a federal tax requirement, but it protects both of you. Cover the hourly rate, work schedule, pay frequency, duties, time off, and how overtime is handled. When a disagreement comes up months later — about hours, duties, or a raise — the agreement is what you both return to.

New Hire Reporting

Federal law requires you to report the new hire to your state’s designated agency within 20 days of the start date, and some states set shorter deadlines.⁴ Most states accept the report online through their new hire portal, and the submission takes only a few minutes.

Wage and Hour Rules

Household caregivers are covered by the Fair Labor Standards Act. That means at least the federal minimum wage of $7.25 per hour for every hour worked, or your state or city rate if it’s higher.⁵ It also means time-and-a-half overtime for hours beyond 40 in a single workweek.¹

Live-In Caregivers

A caregiver who lives in your home is exempt from overtime but still gets at least minimum wage for all hours worked.⁶ To count as live-in, the caregiver must reside on the premises permanently or for extended periods, generally five or more days per week or at least 120 hours per week. A short-term arrangement of a few weeks does not qualify.

You can agree in writing with a live-in caregiver to exclude genuine meal breaks, sleep periods, and off-duty time from paid hours. If any of those get interrupted by a call to duty, that time counts as work. Keep the agreement on file, and if actual practice drifts away from the written terms, rewrite it to match reality.⁶

The Taxes You’ll Owe

Social Security and Medicare

Cross $3,000 in cash wages to your caregiver during 2026 and FICA kicks in. The combined rate is 15.3%, split evenly: 7.65% withheld from the caregiver’s pay and 7.65% paid by you.¹ You can choose to pay the employee’s share yourself instead of withholding it, but that amount then counts as additional taxable wages to the caregiver.

The $3,000 threshold is low. At $15 an hour for four hours a week, you’ll clear it in about 50 weeks. Most caregiving arrangements pass it well before year-end.

Federal Unemployment Tax

If you pay cash wages totaling $1,000 or more in any calendar quarter, you owe FUTA. The statutory rate is 6.0%, but a credit of up to 5.4% for state unemployment taxes brings the effective rate down to 0.6% for most employers. FUTA applies only to the first $7,000 of wages per employee, so the maximum you’d owe per caregiver at the effective rate is $42.¹

Federal Income Tax Withholding

You aren’t required to withhold federal income tax from a household caregiver’s wages. It’s optional. If your caregiver asks you to withhold and you agree, have them fill out a Form W-4 so you know the right amount.⁷ Many caregivers prefer this because it spares them from making quarterly estimated payments on their own.

State Unemployment and Other Payroll Taxes

Most states levy a separate unemployment tax on household employers, with rates ranging from a fraction of a percent to over 10% depending on the state and your claims history. You’ll register with your state’s workforce or unemployment agency when you hire. Around a dozen states also require contributions for disability insurance or paid family leave, generally between 0.2% and 1.3% of wages, often split between employer and employee. Check your state labor department’s website for what applies to you.

Filing and Recordkeeping

Schedule H

Household employers don’t file quarterly payroll returns. Instead, all household employment taxes get reported once a year on Schedule H, attached to your personal Form 1040. The deadline follows your income tax return, typically April 15, and any extension you get on your 1040 carries Schedule H with it.⁸

Because you aren’t making quarterly deposits, plan to cover the year’s household employment taxes through estimated tax payments or by adding extra federal withholding at your own job. Many household employers file an updated W-4 with their own employer requesting additional withholding each pay period, which is often simpler than writing estimated tax checks.¹

Form W-2

By February 1, 2027, give your caregiver a completed Form W-2 for 2026 wages and taxes withheld, and send Copy A along with Form W-3 to the Social Security Administration by the same date.⁹ Filing electronically through the SSA’s Business Services Online portal is faster and avoids the errors that come with paper forms.

How Long to Keep Records

Keep copies of Schedule H, W-2, W-3, and W-4 for at least four years after the due date of the return or the date the taxes were paid, whichever is later.⁸ Separately, the Department of Labor requires payroll records for at least three years and timekeeping records — schedules, time cards, records of pay changes — for at least two.¹⁰ The cleanest approach is to keep everything for four years.

Workers’ Compensation and Liability Insurance

Workers’ compensation rules for household employers vary dramatically by state. New York requires coverage once a caregiver works 40 or more hours per week; Massachusetts sets the threshold at 16 hours; some states exempt domestic workers entirely; others sit somewhere in between. Check your state’s workers’ compensation board, because penalties for missing required coverage can be steep.

You can often add workers’ compensation as an endorsement to your existing homeowners’ policy, which usually costs less than a standalone policy. If your insurer doesn’t offer that, a specialized commercial carrier can write one. An umbrella liability policy is worth considering too. It extends your coverage limits if a caregiver is seriously injured and workers’ compensation benefits fall short.

Tax Breaks That Offset the Cost

Dependent Care FSA

If you hire the caregiver so you (and your spouse, if married) can work, a dependent care FSA through your employer can cover part of the cost with pre-tax dollars. For 2026, the annual contribution limit rises to $7,500 for both joint and single filers, up from the long-standing $5,000 cap. The dependent must be a child under 13, or a spouse or other dependent who is physically or mentally unable to care for themselves and who lives with you more than half the year.

Medical Expense Deduction

If you’re hiring the caregiver for an elderly or disabled family member, part of the wages may qualify as a medical expense on Schedule A. The care must be medically necessary — prescribed by a physician as part of a documented plan — and only the time spent on medical-related tasks counts. Total medical expenses must exceed 7.5% of your adjusted gross income before any deduction, and you have to itemize.

What Paying Cash Actually Costs If Caught

The under-the-table approach looks easier until the IRS catches up. Failing to pay household employment taxes triggers a penalty of 0.5% of the unpaid balance per month, up to 25%, plus interest that the IRS cannot waive. If you get a notice of intent to levy and don’t pay within 10 days, the monthly penalty rises to 1%.¹¹ You also owe the caregiver’s share of FICA you failed to withhold, and you can’t go back and collect it from the employee, which puts you on the hook for the full 15.3%.

Wage and hour violations carry their own exposure. Civil penalties reach up to $2,515 per violation for repeat or willful minimum wage and overtime offenders,¹² and back wages for every underpaid hour are owed on top of the fines.

Choosing the Caregiver

The administrative work matters less if the hire itself goes wrong. Start with a background check. Have the candidate sign a written consent form authorizing you to review their criminal history and, if driving is part of the job, their driving record. A candidate who refuses is telling you something. Screening services aimed at household employers are inexpensive relative to the risk of skipping the step.

Call professional references directly. Former employers can tell you whether the caregiver showed up on time, how they handled stressful moments, and why they left. Specific questions produce better information than general ones. Ask how the candidate responded when something unexpected happened rather than whether they were reliable.

Finish with a face-to-face meeting between the caregiver and the person who will actually receive care. Personal compatibility carries as much weight as any credential, and paperwork won’t show you whether it’s there. When the checks clear and the in-person dynamic works, send a formal offer letter with the start date, pay rate, schedule, and a reference to the written employment agreement you’ve already drafted.

1
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
2
Internal Revenue Service. Instructions for Form SS-4 – Application for Employer Identification Number
3
U.S. Citizenship and Immigration Services. Handbook for Employers M-274 – 13.0 Acceptable Documents for Verifying Employment Authorization and Identity
4
Administration for Children and Families. New Hire Reporting
5
U.S. Department of Labor. State Minimum Wage Laws
6
U.S. Department of Labor. Fact Sheet 79B – Live-in Domestic Service Workers Under the Fair Labor Standards Act
7
Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
8
Internal Revenue Service. Instructions for Schedule H
9
Internal Revenue Service. General Instructions for Forms W-2 and W-3
10
U.S. Department of Labor. Fact Sheet 79C – Recordkeeping Requirements for Domestic Service Workers Under the FLSA
11
Internal Revenue Service. Failure to Pay Penalty
12
eCFR. 29 CFR Part 578 – Tip Retention, Minimum Wage, and Overtime Violations – Civil Money Penalties