Paying a Caregiver Legally, Not Under the Table

What does paying a caregiver legally actually require?

Four steps, in order. Decide whether she is your employee or a contractor — for in-home caregivers the answer is almost always employee. Register as a household employer and open the tax accounts. Run payroll on a schedule: wage, withholding, your matching share. Then file — a W-2 for her in January, and Schedule H with your own return in April.

The reassuring part is that this is a defined, ordinary category. The IRS has a name for what you are doing — household employer — and publishes a summary of who counts as a household employee and which taxes follow 1Ref 1Internal Revenue Service (2025).Topic no. 756, Employment taxes for household employees.Who counts as a household employee — the control-based test that distinguishes an employee from an independent contractor — and the federal employment-tax duties that follow: Social Security, Medicare, federal unemployment tax, and Schedule H reporting.. You are not improvising. You are stepping into a structure that already exists, with instructions.

The unwelcome part is that the structure has more pieces than a wage. Federal taxes are the visible half; state registration, state unemployment insurance, and workers' compensation sit alongside them, and no federal page will mention those. Nothing here scales with how small the arrangement feels. It turns on dollar thresholds and on what the worker does — not on whether this is "just eight hours a week for Mom."

And "legally" does not mean expensive lawyers or a payroll department. For most families the whole apparatus is an afternoon of setup, twenty minutes a pay period, and one extra form in April.

Is your caregiver an employee or a contractor?

Almost always an employee. The test is control, not preference: if you set the hours, decide what tasks get done and how, provide the home and the supplies, and can end the arrangement, the IRS generally treats the worker as your household employee — regardless of what the two of you agreed to call it 1Ref 1Internal Revenue Service (2025).Topic no. 756, Employment taxes for household employees.Who counts as a household employee — the control-based test that distinguishes an employee from an independent contractor — and the federal employment-tax duties that follow: Social Security, Medicare, federal unemployment tax, and Schedule H reporting.. The label on the paperwork does not decide the question.

The distinction is easier to see from the other side. A genuine independent contractor runs a business: she sets her own price, keeps her own schedule, serves several clients at once, brings her own equipment, and can send a substitute if she is sick. A caregiver who arrives at eight because that is when your shift starts, does the tasks on the list you wrote, in your house, alone, with your supplies, and cannot send anyone in her place, is not running a business. She is working a job.

The w-2 vs 1099 caregiver question comes up in nearly every one of these conversations, because a 1099 looks like the door out of the paperwork. It is not a door. A 1099 records a payment; it does not create a contractor. If the relationship is employment, a 1099 is the wrong form on the right money — the misclassification exposure stays with the family that filed it, and the caregiver gets a tax bill she never agreed to carry.

Whether you can pay a caregiver as contractor is therefore not a question about forms. It is a question about facts, and the facts are usually settled by the time anyone asks. Real exceptions exist — a caregiver genuinely running her own business across multiple households, on her own terms. But a family describing "my mother's caregiver, Tuesdays and Thursdays, eight to four" is not describing that person.

What taxes does a family actually owe?

Three federal ones, plus whatever the state adds. Social Security and Medicare tax kicks in once cash wages to a household worker reach a threshold the IRS resets each year. Federal unemployment tax runs on a threshold of its own. Both land on Schedule H, which files with your Form 1040 — there is no separate business return to worry about. The dollar figures move annually.

Publication 926 — reissued each tax year — carries the current thresholds, the federal unemployment rules, and the Schedule H mechanics 2Ref 2Internal Revenue Service (2026).Publication 926, Household Employer's Tax Guide (for use in 2026).The operating detail for a household employer: that Social Security and Medicare taxes apply to cash wages at or above an annual threshold, that federal unemployment tax carries its own, and that both are reported on Schedule H filed with Form 1040 — with the current-year dollar figures on the live page.. The thresholds are deliberately absent from this page. They reset annually, and a remembered number from two years ago is the most common way families get this wrong.

The Social Security Administration frames the same obligation from the caregiver's side. If you pay a household worker cash wages at or above the annual threshold, you must report those wages and pay Social Security and Medicare taxes on them 3Ref 3Social Security Administration (2026).Household Workers (SSA Publication No. 05-10021).That paying a household worker cash wages at or above the annual threshold requires reporting those wages and paying Social Security and Medicare taxes — and that reported wages are what build the worker's own Social Security earnings record.. Reported wages are not only a duty to the government — they build her Social Security record, which determines the retirement and disability benefits she draws on decades from now 3Ref 3Social Security Administration (2026).Household Workers (SSA Publication No. 05-10021).That paying a household worker cash wages at or above the annual threshold requires reporting those wages and paying Social Security and Medicare taxes — and that reported wages are what build the worker's own Social Security earnings record.. A caregiver paid in cash for fifteen years has fifteen years of nothing in that record.

Which is worth saying plainly, because paying cash is usually discussed as a kindness to the caregiver. It is a kindness that costs her the only retirement she has.

Families comparing caregiver taxes agency vs private sometimes conclude the agency route makes the tax disappear. It relocates it: the agency is the employer, so it withholds and files, and the cost sits inside its rate.

State obligations stack on top and the IRS pages do not cover them: unemployment insurance registration, income-tax withholding in some states, and workers' compensation. Your state's labor or employment department is where those answers live. Workers' compensation is the piece families most often skip, and caregiver injury liability is the reason to ask about it before a first shift rather than after one.

Does a private caregiver get minimum wage and overtime?

Usually yes, and the exemptions are narrower than the internet suggests. Under federal wage law, home care workers are generally entitled to minimum wage and to overtime past forty hours in a week. A narrow exemption exists for genuine companionship services, and it is available to the individual or household employing the companion — not to a third-party agency 4Ref 4U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The FLSA definition of companionship services as fellowship, protection, and limited care, and that the minimum-wage and overtime exemption for companionship services is available to the individual, family, or household employing the worker but not to a third-party agency..

The Department of Labor defines companionship services precisely, and the definition is the whole game: fellowship, protection, and limited care for a person who cannot care for themselves 4Ref 4U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The FLSA definition of companionship services as fellowship, protection, and limited care, and that the minimum-wage and overtime exemption for companionship services is available to the individual, family, or household employing the worker but not to a third-party agency.. Fellowship and protection are the core of it — being with someone, engaging with them, keeping watch so they stay safe. "Limited care" means what it says. Companionship services is a legal category, not a job title. It describes what the worker actually does across a shift, not what the advertisement said.

The asymmetry is the surprising part, and it cuts in a direction families do not expect. The exemption belongs to the individual, family, or household employing the worker; a third-party agency employing that same worker cannot claim it 4Ref 4U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The FLSA definition of companionship services as fellowship, protection, and limited care, and that the minimum-wage and overtime exemption for companionship services is available to the individual, family, or household employing the worker but not to a third-party agency.. Hiring directly can put an exemption on the table that the agency down the road does not have.

Two cautions. First, the exemption dissolves the moment the job is really personal care — someone doing transfers, toileting, and bathing through a shift is not providing companionship services in the legal sense, whatever anyone calls the role 4Ref 4U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #79A: Companionship Services Under the Fair Labor Standards Act (FLSA).The FLSA definition of companionship services as fellowship, protection, and limited care, and that the minimum-wage and overtime exemption for companionship services is available to the individual, family, or household employing the worker but not to a third-party agency.. Most real caregiver jobs are personal care with some companionship in them, not the reverse. Second, this corner of the rules has been rewritten before, and the Department of Labor's own page is the current statement of it — the version worth reading before relying on any exemption at all.

Federal rules are a floor, not a ceiling. Whether your state sets a higher minimum wage, or writes its own overtime rules for domestic workers, is a question for its labor office — and assuming the federal answer is the whole answer is how families end up owing back wages.

How does pay work for a live-in caregiver?

Live-in pay is where the intuition fails, because "living here" feels like it should mean "paid differently." Federal rules do address it, but not in the way people assume. There are specific rules governing how sleep time, meal periods, and travel time are counted for live-in and shift domestic workers, and "she was here all night" is not the same claim as "she was working all night."

The Department of Labor publishes FAQs on the domestic service rule covering exactly these questions — third-party employers, live-in domestic workers, and the treatment of sleep time, meal periods, and travel time 5Ref 5U.S. Department of Labor, Wage and Hour Division (2025).Domestic Service Final Rule Frequently Asked Questions (FAQs).That federal rules address live-in domestic workers specifically and govern how sleep time, meal periods, and travel time are counted and paid in live-in and shift home care arrangements.. The distinctions there are technical and they matter, because a live-in arrangement gets budgeted as a flat monthly figure and then, eventually, gets litigated as hours.

The arithmetic is what families discover late. A live-in caregiver is not on duty twenty-four hours a day — she sleeps, she eats, some of the day is hers. But the hours she is genuinely working, including the night she got up three times, are hours. A family that agrees to a flat monthly sum without writing down which hours are working hours has not simplified the arrangement. It has deferred the disagreement to a worse moment.

What belongs on paper before a live-in starts:

• Which hours are on duty, named as hours rather than as an atmosphere.
• The sleeping arrangement — a private space, uninterrupted time, and what happens to the count when the night is interrupted.
• Meal periods — whether she is genuinely free during them or still covering.
• Nights — what counts as a night call, and how it gets recorded when it happens.
• Days off — real ones, with the house covered by somebody else.

Room and board is its own question with its own rules, and whether any of it can count toward a wage is not something to settle by intuition because it feels like part of the deal.

How do you actually set up payroll?

The setup is a handful of one-time steps and then a rhythm. Get a federal employer identification number. Register with your state's employment and unemployment agencies. Have her complete the federal and state withholding forms and confirm work eligibility. Then run pay on a fixed schedule, keep the timesheets, and file whatever your state asks for on its own cadence.

The one-time part. An employer identification number is free and comes from the IRS; Schedule H gets filed under it. State registration is a separate errand from the federal one, and it is the step families most often miss, because nothing in the IRS material prompts you to do it. Setting up household caregiver payroll means doing both, and the state half has its own deadlines.

The repeating part. A fixed pay schedule — weekly or biweekly, the same day every time, because an irregular one is how disputes start. A timesheet with real hours on it, signed, kept. Withholding taken out and set aside rather than spent. Income-tax withholding is a separate question from Social Security and Medicare, with its own answer in the IRS guide, and it is better answered in month one than in April.

The January and April part. A W-2 to her, with its copy to the Social Security Administration, in January. Schedule H with your Form 1040 in April 2Ref 2Internal Revenue Service (2026).Publication 926, Household Employer's Tax Guide (for use in 2026).The operating detail for a household employer: that Social Security and Medicare taxes apply to cash wages at or above an annual threshold, that federal unemployment tax carries its own, and that both are reported on Schedule H filed with Form 1040 — with the current-year dollar figures on the live page.. State deadlines do not necessarily match either.

Doing it yourself, or paying someone to. A caregiver payroll service — the household kind, not the small-business kind — registers you, runs the payroll, makes the deposits, and files the returns for a monthly fee. Whether it is worth it depends less on money than on bandwidth. The failure mode of doing it yourself is almost never arithmetic. It is a missed state filing in the quarter when your father was in the hospital and nobody was thinking about a portal.

What does paying under the table actually cost?

More than the tax it avoids, and the bill arrives at the worst possible moment. Paying under the table means unreported wages, no workers' compensation coverage, no unemployment record, and no paper trail — which is fine right up until she is injured in your house, files for unemployment after you let her go, or your parent applies for Medicaid and years of cash withdrawals need explaining.

The four exposures, plainly:

• The injury. She lifts your father, her back goes, and there is no workers' compensation policy because on paper there is no employment. What happens next is a question for a lawyer, and lawyers are not cheaper than payroll.
• The unemployment claim. She files after the arrangement ends. The state now knows there was an employer who never registered.
• The Medicaid application. Money left your parent's account for years with nothing documenting what it bought. An application that should have been routine becomes an argument you are having under time pressure.
• The tax notice. She reports the income — because she needs the earnings record, or her preparer tells her to, or she simply files honestly — and those wages have no employer attached to them.

Every one of those four is triggered by something outside the family's control. That is what makes paying under the table a different species of risk from most of the risks families weigh — you do not get to choose when it ends.

The other half of the argument belongs to her. Unreported wages are not only missing from a tax return; they are missing from her Social Security record, which is what her retirement and disability benefits are calculated from 3Ref 3Social Security Administration (2026).Household Workers (SSA Publication No. 05-10021).That paying a household worker cash wages at or above the annual threshold requires reporting those wages and paying Social Security and Medicare taxes — and that reported wages are what build the worker's own Social Security earnings record.. They also mean no unemployment eligibility when the job ends, no verifiable income for a lease or a loan, and nothing behind her if the work injures her. The arrangement that feels generous in the moment is generous only in the moment.

What changes when a program is paying the caregiver?

The employer role can change hands. Medicaid's self-directed service model lets a beneficiary manage a budget and select, hire, train, and manage their own caregiver — and in some states, pay a family member for that work 6Ref 6Centers for Medicare & Medicaid Services (2025).Self-Directed Services.That Medicaid self-directed service delivery lets a beneficiary manage a budget and select, hire, train, and manage their own caregiver, and that some states permit paying a family member for that care.. That is a different arrangement from a private hire, with the program's rules layered on top, and the question of who is the employer of record is one the program answers rather than this page.

This matters for two families in particular.

The first is already paying privately and does not know their parent might qualify for a program that would cover some of it. Self-direction exists precisely because people want to choose their own worker rather than accept whoever gets sent 6Ref 6Centers for Medicare & Medicaid Services (2025).Self-Directed Services.That Medicaid self-directed service delivery lets a beneficiary manage a budget and select, hire, train, and manage their own caregiver, and that some states permit paying a family member for that care.. Having already found someone good does not disqualify you.

The second is paying an adult child or a spouse. Self-direction is one of the few structures where paying a relative is the intended design rather than a workaround 6Ref 6Centers for Medicare & Medicaid Services (2025).Self-Directed Services.That Medicaid self-directed service delivery lets a beneficiary manage a budget and select, hire, train, and manage their own caregiver, and that some states permit paying a family member for that care.. The rules differ by state and program, and eligibility sits upstream of everything else here.

So the fork is clean. If a program is paying, its rules govern and this page is the wrong map. If nobody is paying but the family, then the answers here are the whole set, and they are not complicated: employee, not contractor. A wage that meets the floor, with overtime where it applies. Withholding, and the employer's share. A W-2 in January. Schedule H in April. It is less than it sounds like, and it holds up on the day something goes wrong.