Becoming an Employer the Moment You Hire Directly

Do you pay taxes on a private caregiver?

Usually, yes. When a caregiver you hire directly is your household employee, cash wages at or above the annual threshold bring Social Security and Medicare taxes into play, federal unemployment tax may apply alongside them, and the whole thing is reported with your personal return on Schedule H 1Ref 1Internal Revenue Service (2025).Topic no. 756, Employment taxes for household employees.The IRS summary of employment-tax duties for household employees: who counts as a household employee, the Social Security, Medicare, and federal unemployment tax obligations, and Schedule H reporting.. None of this is unusual and none of it is a trap. It is the ordinary consequence of paying someone to work in your home.

Hire through an agency and none of it touches you. The agency employs the caregiver, runs its own payroll, and sends an invoice for a service. You are a customer. That single difference is the entire tax story of the agency vs private caregiver choice, and it is worth understanding while the decision is still open rather than the following April.

A registry sits in the middle and is the arrangement most likely to catch someone out. A registry typically refers an independent caregiver and takes a fee without employing her. If the household directs the work, the household is generally the employer, whatever the registry's paperwork calls the relationship.

This page stays at the altitude of the decision: whether the obligation exists, whose it is, and what it changes about choosing between an agency and a private hire. The step-by-step of registering, withholding, depositing, and filing is a separate subject with its own page.

What makes a caregiver a household employee

The determination turns on control rather than on titles. A worker you hire to do work in or around your home is generally your household employee when you control what work is done and how it is done 1Ref 1Internal Revenue Service (2025).Topic no. 756, Employment taxes for household employees.The IRS summary of employment-tax duties for household employees: who counts as a household employee, the Social Security, Medicare, and federal unemployment tax obligations, and Schedule H reporting.. A caregiver whose hours you set, whose tasks you list, and whose methods you direct fits that description closely, which is why most privately hired caregivers are household employees rather than contractors.

A household employee is a worker you hire for work in or around your home where you control what work gets done and how it gets done. The word written on the agreement does not settle it. The working relationship does.

This is where families reach for the workaround: give her a 1099, call her self-employed, let her handle her own taxes. The difficulty is that classification follows the definition, not the paperwork. An arrangement does not become contractor work because both people would prefer it to be.

The IRS treats this as a determination the household is expected to make, and publishes Publication 926 to walk people through whether the worker they hired is a household employee and whether federal employment taxes are owed 2Ref 2Internal Revenue Service (2026).About Publication 926, Household Employer's Tax Guide.That Publication 926 is the IRS document written to help a household decide whether a worker it hired, such as a privately hired caregiver, is a household employee and whether federal employment taxes are owed.. It is written for people who never planned to run a payroll, which is nearly everyone who ends up running one.

Genuinely independent contractors do exist in this work. A caregiver who runs her own business, brings her own supplies, sets her own methods, serves several unrelated households on terms she sets, and can send a substitute looks materially different from a caregiver who works your mother's schedule doing your list. The distinction is real and it is worth an opinion rather than a hope.

What the obligations are, in outline

There are three federal pieces and they are less exotic than they sound. Cash wages at or above the annual threshold bring Social Security and Medicare taxes onto those wages. Federal unemployment tax runs on its own separate threshold. The amounts are reported with your personal income tax return on Schedule H rather than on any kind of business return 3Ref 3Internal Revenue Service (2026).Publication 926, Household Employer's Tax Guide (for use in 2026).That Social Security and Medicare taxes apply to a household employee's cash wages at or above the annual threshold, that federal unemployment tax applies on its own threshold, and that the amounts are reported on Schedule H with the employer's own Form 1040.. The Social Security Administration says the same thing from its own side: pay a household worker cash wages at or above the annual threshold and the wages are reported and Social Security and Medicare taxes paid 4Ref 4Social Security Administration (2026).Household Workers (SSA Publication No. 05-10021).That paying a household worker such as an in-home caregiver cash wages at or above the annual threshold means reporting those wages and paying Social Security and Medicare taxes on them..

The thresholds are dollar figures that move from year to year, which is exactly why this page does not print one. Reading the current number off the IRS page takes a minute, and it is the difference between a correct answer and a confidently wrong one.

It is two costs, not one. Social Security and Medicare are split between employer and employee. The employer's half is an addition to the wage you agreed, not a slice out of it. A household that budgeted the hourly rate alone has budgeted for part of the cost, and the employer tax burden is the part it left out.

State is a separate layer. Everything above is federal. Whether your state adds unemployment insurance, income tax withholding, or workers' compensation obligations on top is a state question with a state answer. Being correct federally is not the same as being correct, and this is the layer most often missed.

Agency, registry, private: who owes what

The same caregiving hours generate completely different paperwork depending on who employs the caregiver. This is the practical core of caregiver taxes agency vs private, and it is the rare part of the comparison that is genuinely binary. Either you are the employer or you are not, and every row below is a consequence of that one fact.

With an agency, the agency payroll taxes exist and are real; they are simply inside the rate you were quoted, which is one of the reasons that rate looks high. You are not escaping the cost. You are buying it pre-assembled, along with the labour of assembling it.

The registry column is the one that deserves a hard question in writing before anyone starts work: who is the employer of record here, and who is remitting the taxes on what I pay? A referral fee is not an answer to that question, and a friendly assurance on a phone call is not either.

Overtime is a different law from tax

Tax law and wage law are separate systems, and being right about one says nothing about the other. A household can be flawless on Social Security and Medicare and still owe unpaid overtime, because those duties come from a different statute, with different definitions and its own set of exemptions that do not map onto the tax rules at all.

The exemption families ask about most is companionship services. Federal wage law defines companionship services as fellowship, protection, and limited care, and provides a minimum wage and overtime exemption for companions employed by the individual or the household rather than by a third-party employer such as an agency 5Ref 5U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The federal definition of companionship services as fellowship, protection, and limited care, and the minimum wage and overtime exemption available to companions employed by the individual or household rather than by a third-party agency — plus the unsettled status of the third-party rule.. Note that this is the mirror image of the tax picture: on tax, the agency arrangement is the simple one; on wage law, the household arrangement is the one with the exemption available.

Two cautions travel with it. The exemption turns on what the caregiver actually does rather than on the job title or anyone's intention, so a worker providing substantial hands-on care is doing something other than companionship, whatever the advertisement said. And the federal treatment of this area has moved through litigation and rulemaking, with the third-party rule in flux, so the current position needs checking rather than assuming 5Ref 5U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The federal definition of companionship services as fellowship, protection, and limited care, and the minimum wage and overtime exemption available to companions employed by the individual or household rather than by a third-party agency — plus the unsettled status of the third-party rule..

Being right about the tax does not make you right about the overtime. Different laws, different tests, different answers.

Live-in and overnight arrangements are their own tangle

Live-in care is where households most often get the hours wrong, because the intuition that a sleeping caregiver is not a working caregiver is not how the rules reason. Federal wage guidance addresses third-party employers, live-in domestic workers, and how sleep time, meal periods, and travel time are treated for pay purposes 6Ref 6U.S. Department of Labor, Wage and Hour Division (2025).Domestic Service Final Rule Frequently Asked Questions (FAQs).That federal guidance addresses third-party employers, live-in domestic workers, and the treatment of sleep time, meal periods, and travel time — the rules that determine which hours are paid hours in a live-in or overnight home care arrangement.. Those are precisely the questions a live-in arrangement raises on its first night.

The trap is arithmetic. A caregiver present for twenty-four hours is not automatically paid for twenty-four, and is not automatically paid for eight either. What counts depends on rules about interrupted sleep, arrangements agreed in advance, and what the person is actually required to do while present. Getting that structure wrong does not produce a small error. It produces one that repeats every single week until someone notices.

And because the paid hours drive the wage, and the wage drives the tax, a live-in arrangement built on a guess produces two wrong numbers rather than one. Of every arrangement in home care, this is the one most worth an hour of professional advice before it starts rather than a year after.

Why cash is the expensive option

Paying cash does not remove the obligation. It removes the record. The duty attaches to household employment and to the wages paid, not to the method of payment 3Ref 3Internal Revenue Service (2026).Publication 926, Household Employer's Tax Guide (for use in 2026).That Social Security and Medicare taxes apply to a household employee's cash wages at or above the annual threshold, that federal unemployment tax applies on its own threshold, and that the amounts are reported on Schedule H with the employer's own Form 1040.. An envelope on the kitchen counter changes nothing about what is owed; it changes only whether anyone can demonstrate what happened. The gap between paying a caregiver legally and paying informally is, in the end, mostly a gap in records.

The cost is not only the household's. Reporting is how a caregiver's wages enter the Social Security system in the first place 4Ref 4Social Security Administration (2026).Household Workers (SSA Publication No. 05-10021).That paying a household worker such as an in-home caregiver cash wages at or above the annual threshold means reporting those wages and paying Social Security and Medicare taxes on them.. A caregiver paid off the books for a decade has ten years of work that is invisible to the system that will one day pay her benefits. Many caregivers accept cash without ever being told what it costs them, which is worth knowing before the arrangement is offered as a kindness.

There are quieter costs too. An arrangement with no records is an arrangement with no answer to a later question about how money left an older adult's account, and no clean footing if the caregiver is injured in the house. Informality feels like trust while everything is going well. It stops feeling like trust the moment something is contested.

If money has already changed hands informally, the situation is common and it is fixable. It is a conversation with a tax professional, not a catastrophe.

Deciding with the tax cost in view

The tax is not a reason to avoid hiring privately. It is a reason to price it honestly. Households routinely set an agency's rate against a private caregiver's wage, conclude the gap is enormous, and commit — when part of that gap is a tax bill nobody has added yet and a payroll service nobody has priced yet.

So the comparison that survives contact with reality has three numbers on the private side rather than one: the wage, the employer's share of the payroll taxes, and the cost of having someone competent run the payroll. Set that total against the agency's rate and the decision gets truthful. It often still favours hiring directly on money. It simply favours it by less than the two headline numbers implied, and knowing that in advance is the difference between a plan and a surprise.

The questions worth settling before anyone starts, whether you are hiring a private caregiver for four hours a week or forty:

• Is this caregiver a household employee, or genuinely running her own business? The IRS guide exists to answer this one.
• What is the current-year threshold, and will the wages reach it?
• If a registry is involved, who is the employer of record, and is that answer in writing?
• Will the schedule generate overtime, and does any exemption actually fit what she will be doing?
• If this is live-in or overnight care, which hours are paid hours?
• Does the state add obligations on top of the federal ones?

None of those takes long to answer now. All of them are far more expensive to answer backwards, from a letter, two years in.