How to Pay a Caregiver Legally as a Household Employer

To pay a caregiver legally, you almost always need to treat them as your household employee: get an Employer Identification Number, verify their work authorization, withhold Social Security and Medicare taxes once wages cross the annual threshold, pay federal and state unemployment taxes, and file Schedule H with your personal tax return along with a W-2 for the caregiver. In 2026, the Social Security and Medicare threshold is $3,000 in cash wages for the calendar year.¹ Getting the setup right protects you from back-tax liability and gives your caregiver credit toward Social Security and unemployment benefits.

Is Your Caregiver an Employee or a Contractor?

This is the first question, and for most families the answer is employee. The IRS looks at how much control you have over the work, grouped into behavioral control, financial control, and the type of relationship. If you set the schedule, decide which tasks get done, provide supplies, and pay a regular wage, you have a household employee. Calling the arrangement something else on paper does not change the classification, and misclassifying an employee as a contractor can leave you on the hook for all unpaid employment taxes, plus penalties and interest.²

One boundary matters here. If you hired the caregiver through a licensed home care agency that employs the worker directly and sends you an invoice, the agency is the employer and the payroll and tax obligations in this article are theirs, not yours. If you found the caregiver through a registry or referral service that only connects you with a worker, you are the direct employer and everything below applies to you.

What to Set Up Before the First Paycheck

A few things need to happen before you cut the first check. Each one is quick on its own, and skipping any of them creates gaps that are harder to patch later.

Get an Employer Identification Number

You need a federal Employer Identification Number to report and pay employment taxes. The EIN is a nine-digit number the IRS assigns to identify you as an employer. You can apply online at irs.gov in a few minutes at no cost, or mail Form SS-4.³

Verify Work Authorization With Form I-9

Federal law requires you to confirm your caregiver’s identity and authorization to work in the United States using Form I-9. Your employee fills out Section 1 no later than their first day of work. You have three business days from the start date to review their original documents and complete Section 2.⁴ Keep the completed form in your files; you do not send it anywhere, but it needs to be available if an authorized official requests it. Retention runs three years from the hire date or one year after employment ends, whichever is later.⁵

Collect Form W-4

Have your caregiver fill out Form W-4, the Employee’s Withholding Certificate. This tells you how much federal income tax to withhold if the caregiver wants withholding, and it gives you the name, address, and Social Security number you need for payroll and year-end forms.⁶

Report the New Hire to Your State

Federal law requires every employer, including household employers, to report a new hire to a state directory within 20 days. States can impose shorter deadlines. You report the employee’s name, address, Social Security number, hire date, and your EIN. The reporting supports child support enforcement, and it is the step most first-time household employers forget.⁷

Minimum Wage and Overtime

Household employers are covered by the Fair Labor Standards Act. Your caregiver is entitled to at least the federal minimum wage of $7.25 per hour, or your state or city rate if it is higher. Many states are well above the federal floor, so check the local requirement before you set a pay rate.

For caregivers who do not live in your home, you owe overtime at one-and-a-half times their regular rate for every hour over 40 in a single workweek. You cannot average hours across a two-week period to avoid the 40-hour line. Track hours weekly and pay overtime on the correct check.

Live-in caregivers who reside on your premises still earn at least minimum wage for all hours worked, but the overtime premium may not be required. That exemption applies only when your family is the direct employer, not when the caregiver works through a third-party agency. Travel time counts as paid work time when the caregiver drives your family member to appointments or errands as part of the job.⁸

Social Security and Medicare Taxes

Once you pay a household employee $3,000 or more in cash wages during 2026, you owe FICA taxes on all cash wages paid to that employee for the year. Under the threshold, neither of you owes FICA on those wages.¹

The combined FICA rate is 15.3%, split evenly. You withhold 6.2% for Social Security and 1.45% for Medicare from the caregiver’s pay, totaling 7.65%, and you pay a matching 7.65% out of your own pocket. Social Security tax applies to cash wages up to $184,500 in 2026; Medicare tax has no cap.¹ The wage threshold is adjusted for inflation each year; it was $2,800 in 2025.⁹

Family Members Who Do Not Count

Not everyone you pay for caregiving triggers these taxes. When you calculate whether you have crossed the $3,000 threshold, do not count wages paid to your spouse, your child under age 21, your parent (with one exception below), or any employee who was under 18 at any point during 2026 unless household work is their principal occupation. Those same family members are also exempt from federal unemployment tax.¹

The parent exception catches people off guard. If you hire your 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 who is physically or mentally unable to provide that care, FICA does apply to those wages.¹⁰

Unemployment Taxes

Federal unemployment tax (FUTA) comes entirely out of your funds; you never withhold it from the caregiver’s pay. 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, and paying state unemployment taxes on time earns a credit of up to 5.4%, bringing the effective federal rate to 0.6%. That is $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 taxes are handled separately from FUTA, usually with quarterly filings and payments to your state’s workforce or employment agency. Rates and wage bases vary widely. Register with the state agency when you hire your first household employee, because most states require registration regardless of the federal threshold.

Do You Have to Withhold Income Tax?

Federal income tax withholding is not required for household employees. You can agree to withhold it if your caregiver asks, and many do to avoid a big April bill. The amount comes from what the caregiver reported on Form W-4.¹ State rules vary; some states require withholding from household employees, others leave it to mutual 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 you withheld and matched, any FUTA you owe, and any federal income tax you withheld. You pay the total when you file your return, typically by April 15.¹¹ If you would not otherwise file a federal return, you still file Schedule H on its own to report and pay household employment taxes.¹²

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

Watch Out for the Underpayment Penalty

Because household employment taxes are reported annually rather than deposited quarterly, the total on Schedule H can be big 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 (including household employment taxes) after subtracting withholding and refundable credits.¹⁴

The easiest workaround: if you or your spouse have a regular W-2 job, file a new W-4 with that employer and raise your withholding enough to cover the household taxes. The IRS treats withholding the same whether it comes from wages or estimated payments, so bumping up your W-4 at work avoids quarterly estimated tax vouchers entirely.¹⁴

Workers’ Compensation Insurance

Most states require workers’ compensation coverage, and many of those laws apply to household employers with even one employee. The trigger varies. Some states require coverage as soon as you hire anyone, others only after a certain number of hours or dollars per quarter. A handful, like Texas, make workers’ comp optional for most employers.

Do not assume your homeowners policy has you covered. Standard homeowners insurance generally does not include workers’ compensation for household employees, and a caregiver injured on the job can leave you personally exposed. You typically need a separate workers’ comp policy or a specific endorsement. Contact your state’s workers’ compensation board and your insurance agent to confirm what applies where you live.

The Tax Credit That Can Offset Your Cost

If you pay a caregiver so you (and your spouse, if married) can work or look for work, you may qualify for the Child and Dependent Care Credit. The credit 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. The percentage you can claim runs from 50% for lower-income households down to 20% for higher earners, based on adjusted gross income.¹⁵ Qualifying expenses include wages you pay your caregiver and your share of the employment taxes on those wages, but not food, clothing, or entertainment costs. The credit is nonrefundable, so it reduces your tax bill but cannot generate a refund on its own. Claim it on Form 2441 with your tax return.¹⁶

If your employer offers a dependent care flexible spending account, amounts you exclude from income through the FSA reduce the $3,000 or $6,000 expense limit dollar for dollar. You cannot claim the same expenses through both the FSA and the credit.¹⁵

Should You Use a Household Payroll Service?

Calculating FICA withholding, filing Schedule H, and issuing W-2s is manageable but easy to fumble. Household payroll services handle payroll runs, tax calculations, quarterly state filings, and year-end documents for a monthly fee that generally falls between $39 and $78 for one employee. Some also help with initial EIN registration and state agency setup.

Using a service does not change your legal obligations. You are still the employer, and the liability for accurate and timely tax payments stays with you. What a service does is cut the odds of a math error or missed deadline, which for most families is worth the monthly cost against the real risk of penalty notices from the IRS or your state.

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