What Is a Domestic Employee? Definition, Taxes, and Obligations

A domestic employee is a worker you hire to perform services in or around your private home whose work you direct and control. Nannies, housekeepers, home health aides, personal chefs, gardeners who use your equipment, and drivers who follow your schedule all typically fall into this category. Once you cross certain federal wage thresholds — $3,000 in cash wages to any one worker in 2026 for Social Security and Medicare, or $1,000 in a calendar quarter across all household workers for federal unemployment tax — you become a household employer with real tax and labor obligations.¹

The Control Test That Decides Employee Status

Federal law draws the line between employee and independent contractor based on control. If you have the right to tell the worker not just what to do but how to do it, that person is your employee.² Setting the schedule, choosing the cleaning products, dictating the order of tasks, or requiring specific childcare routines all point toward an employment relationship.

IRS Publication 926 groups the analysis into three areas: behavioral control (do you instruct the worker on when, where, and how to work?), financial control (do you supply the tools and materials?), and the type of relationship (is there a written contract, and do you provide benefits?).¹ No single factor decides it. The IRS weighs the full picture, and household work almost always tips toward employee status because the homeowner naturally controls so much of how the work happens.

The Jobs That Typically Count

The category covers a wide range of household roles, all sharing the same feature: the work happens in or around a private residence under the homeowner’s direction. Common examples include:

Nannies and au pairs who follow parent-set routines for meals, naps, and activities
Housekeepers cleaning to the owner’s standards on the owner’s schedule
Personal chefs preparing meals in the household kitchen
Gardeners and yard workers using the homeowner’s equipment and instructions
Personal drivers transporting family members on set schedules
Home health aides and private nurses providing daily personal or medical care

The common thread is direction of the work itself, not just a request for a finished result.

Who Is Not a Domestic Employee

Independent Contractors

A worker is generally an independent contractor if they offer their services to the public, supply their own equipment, and control how the job gets done.³ A plumber called for a one-time repair, a landscaping company that sends a crew with its own mowers, or a cleaning service that rotates staff and sets its own methods all fall on the contractor side. You control the result, not the method.

Labeling an employee a contractor to avoid taxes is one of the most common mistakes household employers make, and the IRS audits for it. If you set the hours, supply the vacuum, and tell the worker which rooms to clean first, calling that person a contractor will not hold up.

Family Members

Certain family relationships create automatic exceptions. You do not owe Social Security or Medicare taxes on wages paid to your spouse, your child under 21, or your parent, and the same family members are exempt from federal unemployment tax.²

The parent exemption has a catch. If your parent works in your home caring for your child who is under 18 or has a condition requiring adult supervision, and you are a single parent, a widowed parent, or have a spouse who cannot care for the child due to a health condition, that arrangement does trigger Social Security and Medicare taxes.¹ In that situation, your parent is effectively replacing a paid caregiver.

Workers Under 18

If a household employee is under 18 at any point during the year, their wages are exempt from Social Security and Medicare taxes unless domestic work is their principal occupation. A high school student who babysits after school is exempt. A 17-year-old working full time as a nanny is not.¹

What Hiring a Domestic Employee Obligates You to Do

Social Security and Medicare (FICA)

Pay any single household employee $3,000 or more in cash wages during 2026, and you owe Social Security and Medicare taxes on all of that worker’s cash wages for the year. The combined rate is 15.3 percent, split evenly between employer and employee, though you can choose to pay the employee’s share yourself.¹ Social Security tax applies to wages up to $184,500 in 2026; Medicare has no cap.⁴ Below the $3,000 threshold, neither of you owes these taxes on the wages.⁵

Federal Unemployment Tax (FUTA)

A different threshold governs FUTA. If you pay total cash wages of $1,000 or more to all household employees combined in any calendar quarter, FUTA applies.⁶ The rate is 6 percent on the first $7,000 of wages per employee, but a credit of up to 5.4 percent for state unemployment taxes usually brings the effective rate to 0.6 percent, capping the annual cost at $42 per employee.¹

Minimum Wage and Overtime

The Fair Labor Standards Act covers domestic employees, so your household worker has the same baseline pay protections as someone in a commercial setting.⁷ The federal minimum wage is $7.25 per hour, many states set a higher floor, and overtime kicks in after 40 hours in a workweek at one and a half times the regular rate.

Live-in workers are treated differently on overtime. They are entitled to the federal minimum wage for every hour worked, but federal law exempts them from overtime.⁸ Sleep and meal periods for live-in staff can be excluded from paid hours only if the employer and employee agree and the worker is completely free from duties. Interruptions count as hours worked.⁹ A live-in nanny responding to a child waking at 2 a.m. is on the clock during that interruption.

A narrow exemption covers workers providing companionship services (fellowship, care, and protection) for someone who cannot care for themselves due to age or a physical or mental condition. These workers are not entitled to minimum wage or overtime under federal law, though the exemption does not reach trained medical personnel like registered or practical nurses.¹⁰ Some states do not recognize this federal exemption, so state law may still require both.

Keep accurate records of every hour worked, including for live-in staff.⁸ Without records, the Department of Labor will side with the employee’s account.

State Unemployment and Workers’ Compensation

Federal taxes are only part of the picture. Most states impose their own unemployment insurance tax (SUTA) on household employers, with wage bases and rates that vary widely. Workers’ compensation rules also vary: some states exempt domestic workers, others require coverage after a set number of hours per week, and some trigger coverage at a quarterly hours threshold. Check with your state’s workforce agency and workers’ compensation board before assuming you have no obligation.

Annual Filing

Household employment taxes are reported once a year on Schedule H, filed with your personal Form 1040 by April 15, 2027, for the 2026 tax year.¹ You also owe the employee a Form W-2 by February 1, 2027, and must file Copy A with the Social Security Administration along with Form W-3 by the same date.¹¹ Keep the records for at least four years.¹²

What Getting It Wrong Costs

Failure to file Schedule H generally draws a penalty of 5 percent of the unpaid tax per month, up to 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $525 or 100 percent of the tax owed. Filing on time but not paying adds a separate 0.5 percent monthly penalty, also capped at 25 percent, and interest compounds daily at the federal short-term rate plus 3 percent.¹³

On the wage side, misclassification or failure to pay minimum wage and overtime exposes you to a lawsuit for back wages, an equal amount in liquidated damages, and the employee’s attorney’s fees.¹⁴ The standard lookback is two years, extended to three for willful violations, and repeat or willful violators face civil money penalties on top.¹⁵

1
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
2
Office of the Law Revision Counsel. 26 USC 3121 – Definitions
3
Internal Revenue Service. Independent Contractor Defined
4
Social Security Administration. Social Security Tax Limits on Your Earnings
5
Social Security Administration. Employment Coverage Thresholds
6
Office of the Law Revision Counsel. 26 USC 3306 – Definitions
7
U.S. Department of Labor. Fact Sheet 79D – Hours Worked Applicable to Domestic Service Employment Under the FLSA
8
U.S. Department of Labor. Fact Sheet 79B – Live-in Domestic Service Workers Under the FLSA
9
eCFR. 29 CFR 552.102 – Live-in Domestic Service Employees
10
Federal Register. Application of the Fair Labor Standards Act to Domestic Service
11
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
12
Internal Revenue Service. Employment Tax Recordkeeping
13
Internal Revenue Service. Topic No. 653 – IRS Notices and Bills, Penalties and Interest Charges
14
Office of the Law Revision Counsel. 29 USC 216 – Penalties
15
U.S. Department of Labor. Handy Reference Guide to the Fair Labor Standards Act