How to Pay a Caregiver Legally as a Household Employer

To pay a caregiver legally, you treat the person as your household employee: verify their work authorization, run payroll with the right tax withholding, carry workers’ compensation if your state requires it, and file the correct forms with the IRS and Social Security Administration at year end. In 2026, Social Security and Medicare taxes apply once you pay a household employee $3,000 or more in cash wages during the calendar year.¹ Doing it right protects you from back taxes and penalties, and it builds Social Security credits and unemployment coverage for the person caring for your family.

Employee or Independent Contractor

The first decision is also the one most families get wrong. If you set the schedule, tell the caregiver what to do, provide the supplies, and pay a regular wage, the IRS treats that caregiver as your employee, not an independent contractor. The label on a handshake agreement does not change that, and misclassifying an employee can leave you on the hook for all unpaid employment taxes plus penalties and interest.²

When the Agency Is the Employer Instead of You

How you found the caregiver changes who carries the paperwork. A caregiver registry or referral service simply introduces you to a worker; you become the direct employer and everything below applies to you. A licensed home care agency usually employs the caregiver itself, invoices you, and handles payroll and compliance on its end. If you are paying an agency rather than the caregiver, the obligations in this article are not yours.

Setting Up Before the First Paycheck

A few steps need to be done before you pay your caregiver anything. Skipping them creates gaps that are harder to fix later.

Get an Employer Identification Number

Apply for a federal Employer Identification Number, the nine-digit number the IRS uses to identify you as an employer. You can get one at irs.gov in a few minutes at no cost, or by mailing Form SS-4.³

Verify Work Authorization With Form I-9

Federal law requires you to confirm your caregiver’s identity and work authorization using Form I-9. The caregiver completes Section 1 no later than the first day of work, and you have three business days from the start date to review original documents and complete Section 2.⁴ You keep the completed I-9 in your own files; you do not send it anywhere unless an authorized official asks for it. Hold it for three years from the hire date or one year after employment ends, whichever is later.⁵

Collect Form W-4

Have the caregiver fill out Form W-4, the Employee’s Withholding Certificate. This tells you how much federal income tax to withhold, if any, and gives you the name, address, and Social Security number you need to run payroll and prepare the W-2.⁶

Report the Hire to Your State

Federal law requires all employers, including household employers, to report new hires to a state directory within 20 days. Some states give you less time. You report the caregiver’s name, address, Social Security number, hire date, and your EIN. The requirement supports child support enforcement and is easy to miss when you have never thought of yourself as an employer.⁷

Minimum Wage and Overtime

Household employees are covered by the Fair Labor Standards Act, so your caregiver earns at least the federal minimum wage of $7.25 per hour. Many state and city minimums are higher, and you pay whichever rate is highest. Check your local rate before setting pay.

For caregivers who do not live in your home, you owe overtime at one-and-a-half times the regular hourly rate for every hour over 40 in a workweek. You cannot average hours across two weeks to avoid the 40-hour line. A separate rule applies to live-in domestic workers: they still earn at least minimum wage for all hours worked, but the overtime premium may not apply when you (the family) are the employer. The live-in overtime exemption does not extend to caregivers employed by third-party agencies.

Sleep Time and Travel for Live-In Caregivers

Live-in schedules raise questions about when the clock is running. Federal rules let you exclude up to eight hours of sleep time per day from paid hours, provided the caregiver generally gets at least five hours of uninterrupted sleep. If interruptions prevent that, you owe pay for the whole sleep period, and any time the caregiver is called to duty during an otherwise excluded sleep period is paid time. Travel between sites during the workday counts too; driving your family member to appointments or errands is paid work time.⁸

Social Security and Medicare Taxes

The central tax rule is the $3,000 threshold. Once cash wages to a single household employee reach $3,000 in 2026, you owe Social Security and Medicare taxes (FICA) on all cash wages paid to that employee for the year. Below $3,000, neither of you owes FICA on those wages.¹

The combined FICA rate is 15.3%, split evenly between you and the caregiver. You withhold 6.2% for Social Security and 1.45% for Medicare from each paycheck, and you pay a matching 7.65% out of your own funds. Social Security tax applies to cash wages up to $184,500 in 2026; Medicare tax has no cap.¹ The threshold is adjusted for inflation each year, so confirm the figure when a new year starts.⁹

Family Members You Do Not Count

Some caregivers are exempt. When measuring the $3,000 threshold, you do not count wages paid to:

Your spouse
Your child under age 21
Your parent (with the exception below)
Any employee under 18 at any point during 2026, unless household work is their principal occupation

These same family members are also exempt from federal unemployment tax.¹ The parent exception trips families up: if you hire a parent to care for your child who is under 18 or has a condition requiring adult supervision, and you are divorced, widowed, or living with a spouse physically or mentally unable to provide that care, FICA does apply to those wages.¹⁰

Federal and State Unemployment Taxes

Federal unemployment tax (FUTA) is separate and comes entirely out of your own funds. You owe FUTA if you paid $1,000 or more in total cash wages to all household employees in any calendar quarter of 2025 or 2026. The gross rate is 6.0% on the first $7,000 of each employee’s annual cash wages, but paying your state unemployment taxes on time earns a credit of up to 5.4%, dropping the effective federal rate to 0.6%. That works out to $42 per employee per year on $7,000 of wages. Wages paid to your spouse, your child under 21, or your parent are exempt from FUTA.¹

State unemployment tax (SUTA) is handled separately and usually requires quarterly filings with your state’s workforce or employment agency. Rates and wage bases vary widely by state. Register with your state agency when you hire your first household employee, because most states require it regardless of whether you have met the FUTA threshold.

Income Tax Withholding Is Optional

Unlike FICA, withholding federal income tax from a household employee’s wages is not required. You can agree to withhold it if the caregiver asks, which many do to avoid a large bill in April. The amount is based on their W-4.¹ State income tax withholding rules differ: some states require it, others leave it to agreement. Check with your state tax agency.

Year-End Filing: Schedule H and Form W-2

Household employers report federal employment taxes once a year on Schedule H, attached to your personal Form 1040. Schedule H covers the FICA taxes you withheld and matched, any FUTA you owe, and any federal income tax you withheld. You pay the total when you file your return, usually by April 15.¹¹ If you are not otherwise required to file a federal return, you still file Schedule H on its own.¹²

By January 31 of the following year, give your caregiver a completed Form W-2 showing wages paid and taxes withheld, and file copies (with Form W-3, the transmittal) with the Social Security Administration by the same date.¹³

Avoiding an Underpayment Penalty

Because household employment taxes are reported annually rather than deposited quarterly, the Schedule H lump sum can be large enough to trigger an underpayment penalty. You generally need to make estimated payments if you expect to owe $1,000 or more in total tax after subtracting withholding and refundable credits. A simpler route: if you or your spouse earn wages from a regular job, file a new W-4 at that job and increase your withholding by enough to cover the household taxes. The IRS does not care whether the money came from wages or from estimated vouchers.¹⁴

Workers’ Compensation and the Homeowners-Insurance Trap

Most states require employers to carry workers’ compensation coverage, and many of those laws reach household employers with even one employee. The trigger varies by state. Some require coverage as soon as you hire anyone; others kick in only after a threshold of hours or wages per quarter. A handful, like Texas, make workers’ comp optional for most employers.

Do not assume your homeowners insurance covers an injured caregiver. Standard homeowners policies generally do not include workers’ compensation for household employees. You usually need a separate policy or a specific endorsement. Call your state’s workers’ compensation board and your insurance agent to confirm what applies. Going without coverage can expose you to serious personal liability if the caregiver is hurt on the job.

Recordkeeping

On each payday, record the date, cash and noncash wages paid, and the amounts withheld for Social Security, Medicare, federal income tax, and any state taxes.¹⁵

Tax Credits That Offset the Cost

If you pay a caregiver so that you (and your spouse, if married) can work or look for work, you may qualify for the Child and Dependent Care Tax Credit. It applies when the care is for a child under 13, a spouse who cannot care for themselves, or another dependent who requires supervision. The credit is based on qualifying expenses up to $3,000 for one qualifying individual or $6,000 for two or more, and you can claim between 20% and 50% of those expenses depending on your adjusted gross income.¹⁵

Qualifying expenses include wages paid to the caregiver and your share of the employment taxes. They do not include food, clothing, or entertainment. The credit is nonrefundable, so it reduces your tax bill but cannot create a refund on its own. Claim it on Form 2441 with your return.¹⁶ If you use a dependent care flexible spending account at work, amounts you exclude from income through the FSA reduce the $3,000 or $6,000 expense limit dollar for dollar. No double-dipping.¹⁵

Should You Use a Household Payroll Service

If calculating FICA, filing Schedule H, and issuing W-2s is more than you want to manage, household payroll services exist for exactly this situation. Companies such as SurePayroll, HomePay, and GTM handle payroll runs, tax calculations, quarterly state filings, and year-end documents for a monthly fee generally in the $39 to $78 range for one employee. Some also help with EIN registration and state agency setup.

A payroll service does not change your legal obligations. You are still the employer, and liability for accurate and timely payment stays with you. What a service buys you is a lower chance of a math error or missed deadline. For most families with a single caregiver, the monthly fee is a reasonable trade-off against the real risk of a penalty notice from the IRS or your state tax agency.

1
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
2
Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
3
Internal Revenue Service. Get an Employer Identification Number
4
U.S. Citizenship and Immigration Services. Instructions for Form I-9, Employment Eligibility Verification
5
U.S. Citizenship and Immigration Services. 10.0 Retaining Form I-9
6
Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate
7
Administration for Children & Families. New Hire Reporting – Answers to Employer Questions
8
U.S. Department of Labor. Fact Sheet 79D: Hours Worked Applicable to Domestic Service Employment Under the FLSA
9
Social Security Administration. Employment Coverage Thresholds
10
Office of the Law Revision Counsel. 26 U.S. Code 3121 – Definitions
11
Internal Revenue Service. Instructions for Schedule H (2025)
12
Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
13
Social Security Administration. Deadline Dates to File W-2s
14
Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
15
Office of the Law Revision Counsel. 26 USC 21 – Expenses for Household and Dependent Care Services
16
Internal Revenue Service. Instructions for Form 2441 – Child and Dependent Care Expenses