How to Handle Caregiver Payroll as a Household Employer

Running caregiver payroll for household employers starts the moment you pay someone $3,000 or more in cash wages during 2026 to work in your home. At that point you owe Social Security and Medicare taxes on every dollar paid, and you must file payroll forms with the IRS.¹ A separate federal unemployment tax kicks in once household wages hit $1,000 in any calendar quarter. Wage and hour rules apply from the first hour. And the whole system gets reported once a year on your personal tax return, not through quarterly business filings.

Are You Actually the Employer

The IRS applies a control test. If you decide what the caregiver does and how they do it, that person is your employee.² Setting the schedule, providing supplies, and directing daily tasks all point the same direction. A true independent contractor runs their own business, brings their own equipment, sets their own hours, and offers services to the public. Most in-home caregivers don’t fit that description.

Calling your caregiver an independent contractor to sidestep payroll taxes is one of the more expensive mistakes a household can make. If the IRS reclassifies the worker later, you owe back Social Security and Medicare taxes for every pay period, plus interest and possible penalties.

One important boundary: if you hire through a home care agency, the agency is usually the employer. It handles payroll, tax withholding, and insurance, and you just pay the invoice. The rules in this article apply when you hire directly, even when a placement service helped make the introduction, as long as you control the work and write the checks.

Paperwork to Set Up Before the First Paycheck

Four items need attention in the first few days.

First, get an Employer Identification Number. This nine-digit number identifies your household for tax purposes. Apply online at the IRS website and you’ll receive it immediately.³

Second, complete Form I-9. Federal law requires you to verify the caregiver’s identity and work authorization within three business days of the first day of work for pay. The caregiver presents acceptable documents (a passport, or a driver’s license combined with a Social Security card, for example), and you examine and record them.⁴

Third, have the caregiver fill out Form W-4 if you plan to withhold federal income tax. Income tax withholding is optional for household employees, but if the caregiver asks you to withhold and you agree, the W-4 tells you how much.⁵

Fourth, report the new hire to your state’s directory within 20 days of the start date. States use this data primarily for child support enforcement. You’ll report the caregiver’s name, address, Social Security number, and date of hire, along with your own name, address, and EIN.⁶

Beyond the federal forms, most states require employers to register for a state unemployment insurance account and, if the state has an income tax, a state withholding account. Registration usually starts with your state’s department of labor or revenue website.

Taxes You’ll Owe

Two federal taxes apply to household wages, and they have different triggers.

Social Security and Medicare (FICA)

Once cash wages to a single household employee reach $3,000 in 2026, FICA applies to every dollar from the first paycheck forward.¹ The combined rate is 15.3% of gross wages, split evenly: 7.65% from you as the employer and 7.65% from the caregiver. Each half breaks down into 6.2% for Social Security and 1.45% for Medicare.⁷

The Social Security portion applies only to the first $184,500 in wages for 2026, though very few caregivers earn anywhere near that.⁸ Medicare has no wage cap.

You can either withhold the caregiver’s 7.65% share from each paycheck or pay it yourself as a perk. If you cover the employee’s share, those extra payments count as taxable income to the caregiver for federal income tax purposes but not as additional wages for FICA purposes.¹ Your employer half is yours to pay either way.

Federal Unemployment Tax (FUTA)

FUTA has a different trigger: total household wages of $1,000 or more in any calendar quarter. Once you cross that line, you owe FUTA on the first $7,000 of wages paid to each employee for the year.⁹ The statutory rate is 6%, but a credit of up to 5.4% applies if you pay your state unemployment taxes on time, which drops the effective federal rate to 0.6%.¹ On $7,000 in wages, that works out to $42.

FUTA is entirely the employer’s expense. Don’t withhold any of it from the caregiver’s pay. States impose their own unemployment tax on top of the federal one, with varying rates and wage bases, and you’ll register and file with your state separately.

Paying the Caregiver Legally

Household caregivers are covered by the Fair Labor Standards Act. You must pay at least the federal minimum wage of $7.25 per hour for every hour worked, and many states and cities set higher minimums; the higher rate applies. Hours beyond 40 in a single workweek require overtime pay at one and a half times the caregiver’s regular rate.¹⁰

Repeated or willful violations of minimum wage or overtime rules carry civil penalties of up to $2,515 per violation, and the caregiver can recover back pay plus an equal amount in liquidated damages through a lawsuit.¹¹

Live-In Caregivers

If your caregiver lives in your home permanently or for extended stretches, the overtime rule changes. Live-in domestic workers hired directly by a family are exempt from overtime, though they still must earn at least minimum wage for every hour worked. This exemption does not apply when the caregiver is placed through a staffing agency; agency-employed live-in workers are entitled to overtime like any other covered employee.¹²

You and a live-in caregiver can agree in advance to exclude sleep time, meals, and blocks of genuine free time from compensable hours. If sleep or a meal gets interrupted by a call to duty, the interruption counts as time worked.¹² For sleep specifically: you must provide adequate sleeping arrangements, the caregiver must normally get an uninterrupted night’s rest, and no more than eight hours of sleep can be excluded from a 24-hour shift. If the caregiver doesn’t actually get at least five hours of sleep, no deduction is allowed at all.¹³

Workers’ Compensation Insurance

Roughly half of states require household employers to carry workers’ compensation for domestic employees once the caregiver works a certain number of hours per week. Thresholds vary: some states set the bar at 16 hours per week, others at 40, and a few require coverage regardless of hours. Skipping required coverage exposes you personally to the caregiver’s medical bills and lost wages after an on-the-job injury, and many states add fines or criminal penalties.

Even where coverage isn’t mandatory, your homeowners policy may exclude regular domestic employees from liability coverage. Check with your insurer about adding a workers’ compensation endorsement or a separate policy.

Records to Keep

The IRS requires you to keep employment tax records for at least four years after the due date of the return reporting the taxes or the date you actually paid them, whichever is later.¹ On every payday, record the date and:

Cash and noncash wages before any deductions.
Social Security and Medicare tax, both the amount you withheld and your employer share.
Federal income tax withheld, if you agreed to withhold it.
Any state taxes withheld.

Keep the caregiver’s name and Social Security number exactly as shown on their Social Security card.¹ For live-in caregivers, keep accurate hours-worked records. You can ask the caregiver to track and submit their own hours, but maintaining the record is your responsibility.¹²

Filing and Paying Through the Year

Household employers don’t file quarterly payroll returns the way businesses do. You report all household employment taxes once a year on Schedule H, attached to your personal Form 1040.¹⁴ For tax year 2026, that return is due April 15, 2027. If you owe household employment taxes, you must file Schedule H by that date even if you aren’t otherwise required to file a federal return.¹⁵

By January 31 following the tax year, or the next business day if that date falls on a weekend, give the caregiver a completed Form W-2 showing total wages and all taxes withheld. A copy goes to the Social Security Administration by the same deadline.¹⁶ The W-2 is the record the caregiver uses to file their own return, and it’s how their earnings get credited toward future Social Security benefits.

Avoiding an April Surprise

Because household taxes are reported annually rather than each quarter, you can end up owing a large lump sum in April. The IRS charges a failure-to-pay penalty of 0.5% of unpaid taxes for each month the balance remains outstanding, up to 25%, and interest accrues on top of that.¹⁷

Two ways to stay ahead of the bill. The simpler option: increase the income tax withheld from your own paycheck at your regular job by submitting a new W-4 to your employer. That covers the anticipated household taxes without any extra filings on your end.¹⁵ Alternatively, make quarterly estimated payments with Form 1040-ES. The 2026 quarterly deadlines are April 15, June 15, September 15, and January 15, 2027.

Tax Breaks That Offset the Cost

If you hire a caregiver so that you and your spouse can work or look for work, some of the cost may come back to you.

A dependent care flexible spending account lets you set aside up to $7,500 pretax in 2026, or $3,750 if married filing separately, to cover eligible care expenses. That reduces both your taxable income and your payroll tax bill.¹⁸ It applies whether the care recipient is a child under 13 or a dependent adult who can’t care for themselves.

The child and dependent care tax credit is a second option, covering a percentage of qualifying expenses. You can’t use both on the same dollar: expenses reimbursed through an FSA can’t also be claimed for the credit. Run the numbers both ways. For most families the FSA delivers larger savings because the full contribution comes off the top of income before taxes are calculated, while the credit percentage shrinks as income rises.

1
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
2
Internal Revenue Service. Hiring Household Employees
3
Internal Revenue Service. Get an Employer Identification Number
4
U.S. Citizenship and Immigration Services. Completing Section 2, Employer Review and Attestation
5
Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
6
Administration for Children and Families. New Hire Reporting
7
Social Security Administration. Employment Coverage Thresholds
8
Social Security Administration. Contribution and Benefit Base
9
Internal Revenue Service. Topic No. 759, Form 940 – Filing and Deposit Requirements
10
U.S. Department of Labor. Wages and the Fair Labor Standards Act
11
eCFR. 29 CFR Part 578 – Tip Retention, Minimum Wage, and Overtime
12
U.S. Department of Labor. Application of the Fair Labor Standards Act to Domestic Service
13
U.S. Department of Labor. Fact Sheet 22 – Hours Worked Under the Fair Labor Standards Act
14
Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes
15
Internal Revenue Service. Instructions for Schedule H (2025)
16
Social Security Administration. Deadline Dates to File W-2s
17
Internal Revenue Service. Failure to Pay Penalty
18
FSAFEDS. Dependent Care FSA