How to Pay a Caregiver: Tax, Payroll, and Year-End Filings

To pay a caregiver legally, you have to treat yourself as a household employer: get a federal Employer Identification Number, verify the caregiver’s work eligibility, pay at least the applicable minimum wage with overtime where required, and once cash wages reach $3,000 in the calendar year, withhold and match Social Security and Medicare taxes and report everything on a W-2 and Schedule H. For 2026, that $3,000 threshold is the trigger that pulls a household employer into the federal payroll system.¹ Doing this right protects you from back taxes and interest, and it protects the caregiver’s Social Security record, unemployment eligibility, and work history.

Is Your Caregiver Actually Your Employee

The IRS looks at one question above all: do you control how the work gets done? If you set the schedule, provide supplies, and direct how daily tasks are handled, the caregiver is your employee, even if they work part-time or also care for another family.¹ The label on the arrangement doesn’t matter. The IRS will reclassify based on the real working relationship.

A caregiver only qualifies as an independent contractor in narrow circumstances, and in-home care rarely meets the bar. True contractors run their own business, advertise to the public, carry their own insurance, set their own methods, and can profit or lose money on the job. Someone who shows up at your home each morning to care for a family member under your direction is not that person.

Calling an employee a contractor to skip payroll taxes is the most expensive mistake families make. If the IRS reclassifies the worker, you owe the Social Security and Medicare taxes you should have withheld plus the employer’s matching share, along with interest and possible penalties under IRC Section 3509.² It usually surfaces when the caregiver files for unemployment or Social Security and no employment record exists.

Agency Hires Are Not Automatically Off Your Hands

Hiring through an agency does not always shift employer duties. Full-service home care agencies that recruit, train, schedule, and pay the caregiver are typically the legal employer and handle taxes and insurance themselves. Many agencies, though, are referral registries: they connect you with a caregiver and may process payments, but the family remains the employer of record. Ask directly whether the agency withholds employment taxes and carries workers’ compensation. If the answer is no, every obligation below is yours.

Paperwork Before the First Paycheck

Three documents come before any money changes hands. Skip them and the problems compound.

Employer Identification Number

You need a federal Employer Identification Number to report wages and pay employment taxes. It’s a tax ID for your role as an employer, separate from your personal Social Security number. Apply online using Form SS-4 and the nine-digit number is issued immediately at no cost.³

Form I-9 Work Authorization

Federal law requires every employer to verify a new hire’s authorization to work in the United States. The caregiver completes Section 1 of Form I-9 no later than their first day on the job. You examine original identity and work-authorization documents within three business days. Acceptable combinations include a U.S. passport alone, or a state driver’s license paired with a Social Security card.⁴

The I-9 is not submitted to any agency, but you must keep it on file for whichever period is longer: three years after the hire date, or one year after employment ends.⁵

Form W-4

Have the caregiver complete a Form W-4 so you know their filing status and any withholding adjustments.⁶ Household employers are not required to withhold federal income tax, but many caregivers ask for it to avoid a large bill at tax time. If they request withholding, the W-4 tells you what to withhold.

Setting a Legal Pay Rate

The federal minimum wage is $7.25 per hour and it applies to household employees.⁷ Most families pay well above that floor, because many states and cities set their own minimums, sometimes double the federal rate or more. You owe the higher of the federal, state, or local figure. Room and board can count toward wages only under specific conditions and up to a limited dollar amount; you can’t substitute housing for a paycheck.

Any hours beyond 40 in a workweek must be paid at 1.5 times the regular hourly rate. A caregiver earning $20 per hour gets $30 for each overtime hour. Track start and end times every day. If a wage dispute reaches a hearing, the burden of proof on hours worked sits with the employer, and failing to pay required overtime under federal law exposes you to liquidated damages equal to the unpaid amount, effectively doubling what you owe.⁸

There is one exception. If the caregiver lives in your home permanently or stays at least five days a week (120 or more hours), they qualify as a live-in domestic worker and are exempt from the overtime requirement. Minimum wage still applies to every hour worked, but time-and-a-half does not. The exemption only covers families who directly employ the caregiver; an agency that employs the caregiver cannot claim it and must pay overtime regardless.⁹

Put the Terms in Writing

No federal law requires a written contract for household employment, but operating without one invites disputes. A short, plain-English agreement signed by both parties should cover the work schedule, hourly rate and overtime rate, pay frequency, job duties, paid time off, termination notice, confidentiality, and an explicit statement that the caregiver is an employee rather than an independent contractor. That last line locks in the tax-withholding arrangement and heads off later confusion.

The Taxes You Owe and Withhold

Once you pay a household employee $3,000 or more in cash wages during 2026, Social Security and Medicare withholding kicks in.¹ The threshold is per employee, not cumulative across workers.

Social Security and Medicare

The Social Security tax rate is 6.2% and the Medicare rate is 1.45%, withheld from the caregiver’s gross pay each period. You match both out of your own pocket for a combined 15.3% of gross wages, half from the caregiver’s check, half from you.¹ On $30,000 in annual wages, the employer’s share alone adds $2,295 to your total cost.

Federal Income Tax

Withholding federal income tax from a caregiver’s pay is optional unless the caregiver requests it by submitting a W-4. If you both agree, use the IRS withholding tables to calculate the amount each pay period. Handling it through payroll is usually easier for the caregiver than making quarterly estimated payments.

Federal Unemployment Tax

If you pay $1,000 or more in total cash wages to household employees in any calendar quarter, you owe federal unemployment tax on the first $7,000 of each employee’s annual wages.¹⁰ The statutory rate is 6.0%, but a credit of up to 5.4% applies when you pay state unemployment taxes on time, dropping the effective rate to 0.6%.¹ That works out to a maximum of $42 per employee per year, and FUTA is the employer’s cost alone; nothing is withheld from the caregiver.

State Unemployment Tax

Most states impose their own unemployment insurance tax on household employers, and rates and wage bases vary widely. Some states set the taxable wage base at $7,000; others go considerably higher. You register with the state workforce or labor agency and receive a rate based on employment history. Failing to register is one of the most overlooked obligations and can bring penalties, plus denial of benefits the caregiver would otherwise be entitled to.

Running Payroll

Pick a consistent pay schedule, weekly or biweekly, and stick with it. Each paycheck should come with a written pay stub showing gross pay, hours worked, and every deduction itemized: Social Security, Medicare, and any federal or state income tax withheld. A dedicated checking account for payroll isn’t legally required, but it keeps the paper trail clean if the IRS or a state agency asks questions later.

If the calculations and deadlines feel like too much, household payroll services will handle withholding, generate W-2s at year-end, and file Schedule H on your behalf. The cost is modest compared to the penalties for getting it wrong.

Tax Credits That Offset the Cost

Two federal tax benefits can reduce the net cost of paying a caregiver, and families routinely leave money on the table by not using them.

Child and Dependent Care Tax Credit

If you pay a caregiver so that you (and your spouse, if married) can work or look for work, you may qualify for a credit on up to $3,000 in qualifying expenses for one dependent or $6,000 for two or more. The credit percentage is based on your adjusted gross income, and recent changes under the One Big Beautiful Bill Act increased the maximum rate to 50% for lower-income households, phasing down as income rises. The credit is nonrefundable, so it can reduce your tax to zero but won’t generate a refund beyond that.

Dependent Care Flexible Spending Account

If your employer offers a dependent care FSA, you can set aside pre-tax dollars to cover caregiver costs. For 2026, the maximum contribution is $5,000 for married couples filing jointly (or $2,500 if filing separately), though recent legislation may increase this limit. Contributions cut your taxable income dollar for dollar, saving both income tax and FICA. You can use the FSA and the dependent care credit in the same year, but FSA contributions reduce the qualifying expenses available for the credit, so run the numbers both ways.

Year-End Filings and Deadlines

Two dates govern the annual paperwork.

Form W-2 by January 31

You must give the caregiver a completed W-2 showing total wages and all taxes withheld, and submit Copy A to the Social Security Administration by January 31 of the following year, or the next business day if the 31st falls on a weekend.¹¹ For 2025 wages, the deadline is February 2, 2026 because January 31 is a Saturday. If a caregiver leaves mid-year and requests their W-2 early, you have 30 days to produce it.

Schedule H with Your 1040

Household employment taxes are reported on Schedule H and filed with your personal Form 1040.¹² Schedule H captures Social Security, Medicare, FUTA, and any withheld income tax for the year, and it’s due with your regular return, typically April 15.

Avoid the Estimated Tax Trap

The employment taxes reported on Schedule H can create an underpayment penalty if you haven’t accounted for them during the year. The IRS recommends either increasing the federal income tax withheld from your own paycheck by submitting a revised W-4 to your employer, or making quarterly estimated tax payments using Form 1040-ES.¹³ Paying the full amount in one April lump sum can trigger a penalty on top of the tax.

State Rules and Insurance

Federal rules set the floor. Your state may raise it. More than 20 states now mandate paid sick leave, and domestic workers are covered in many of them, commonly under a formula of one hour of paid sick leave for every 30 hours worked. Some states also require rest breaks, meal periods, or additional pay-stub disclosures. If your state has an income tax, you’ll likely need to register separately with the state tax agency and withhold state income tax from the caregiver’s pay.

Roughly half the states require household employers to carry workers’ compensation insurance once a domestic worker exceeds a set number of hours per week or dollars earned per quarter. The thresholds vary widely: some states cover any domestic worker with no minimum, while others only kick in at 16, 35, or 40 hours per week. Check with your state’s labor department or workers’ compensation board. Even where coverage isn’t mandatory, buying a policy protects you from paying out of pocket if the caregiver is injured on the job. A personal umbrella liability policy layered over your homeowner’s insurance adds a further backstop for the same scenario.

Before the first paycheck, confirm all three state-level obligations with the relevant agencies: income tax withholding, unemployment insurance, and workers’ compensation. Each has its own registration, and each is easy to miss when your attention is on the federal side.

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. About Form SS-4, Application for Employer Identification Number (EIN)
4
U.S. Citizenship and Immigration Services. Form I-9, Employment Eligibility Verification
5
U.S. Citizenship and Immigration Services. 10.0 Retaining Form I-9
6
Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate
7
U.S. Department of Labor. Minimum Wage
8
Office of the Law Revision Counsel. 29 USC 216 – Penalties
9
U.S. Department of Labor. Fact Sheet 79B, Live-in Domestic Service Workers Under the FLSA
10
Internal Revenue Service. Topic No. 756, Employment Taxes for Household Employees
11
Internal Revenue Service. Topic No. 752, Filing Forms W-2 and W-3
12
Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes
13
Internal Revenue Service. Instructions for Schedule H (2025)