Setting Up Payroll for a Household Caregiver

Step One: Confirm You're the Household Employer

Before setting up anything, confirm the caregiver is actually your household employee rather than an independent contractor — a distinction the IRS decides by looking at who controls the schedule and the tasks, not by which form either side would prefer to file 1Ref 1Internal Revenue Service (2025).Topic no. 756, Employment taxes for household employees.That the IRS determines household-employee status for a privately hired caregiver by looking at who controls the work and how it's performed, the starting question before setting up payroll.. If the family sets the hours, the routine, and how the work gets done, payroll is the right next step, not a 1099.

This is worth getting right before anything else, because the alternative — treating hiring a private caregiver as a 1099 arrangement because it's simpler on day one — is exactly what turns into caregiver misclassification penalties later. The w-2 vs 1099 for a caregiver question isn't really a choice; it's a finding about the arrangement you already have.

Payroll setup only works if the classification underneath it is right. Get that settled first, before an EIN or a Schedule H filing.

Step Two: Get an Employer Identification Number

A household employer needs its own federal Employer Identification Number, separate from a Social Security number, before it can report a caregiver's wages — it's the number that appears on the caregiver's W-2 and on the household's own tax filing 2Ref 2Internal Revenue Service (2026).About Publication 926, Household Employer's Tax Guide.That Publication 926 is the reference for determining household-employer status and the federal employment tax steps that follow, including obtaining an EIN.. Applying for an employer EIN is a one-time step tied to the household, not something that has to be repeated if the caregiver changes later.

Publication 926 exists specifically to walk a family through this determination and the steps that follow it, which makes it the right first reference to bookmark before doing anything else on this list.

Applying is free and typically takes only minutes through the IRS's own online application, which issues the number immediately rather than requiring a wait of days or weeks. There's no cost involved and no reason to use a third-party service just to obtain the number itself, even though a service can still be useful for the steps that come after it.

Step Three: Register With the State

States generally run their own registration process for unemployment insurance, separate from the federal steps above, through the state's own labor or revenue agency rather than the IRS. Because the exact form, deadline, and account type vary by state, the household's own state labor department page — searched directly by name — is a more reliable source than a general national summary.

This step is easy to miss because nothing about it happens through the IRS or Social Security; it's a second, independent registration that federal guidance alone won't surface, and the resulting state account number is typically what unlocks the ability to file state wage reports each quarter.

Many states also require new-hire reporting — a short notice to a state directory confirming a new employee has started — within a set number of days of the hire date. It's a separate filing from the unemployment insurance registration, easy to overlook precisely because it's small, and it's worth confirming directly with the state rather than assuming it doesn't apply to a household of one employee.

Step Four: Set a Wage That Clears the Legal Floor

The wage has to clear federal minimum wage, and in most arrangements overtime rules as well, unless the caregiver's duties are narrow enough to fall under the FLSA companionship exemption — fellowship and protection, and little else 3Ref 3U.S. Department of Labor, Wage and Hour Division (2016).Fact Sheet #25: Home Health Care and the Companionship Services Exemption Under the FLSA.That home care workers are generally entitled to federal minimum wage and overtime unless their duties fall under the narrow companionship exemption, which sets the floor for the wage a household sets.. Checking current wage data for home care aides, through sources like the Bureau of Labor Statistics' occupational wage estimates, is a reasonable starting point for a competitive rate, even though those figures describe worker pay broadly across an entire occupation rather than any one household's arrangement 4Ref 4U.S. Bureau of Labor Statistics (2025).Occupational Employment and Wage Statistics: 31-1120 Home Health and Personal Care Aides.National and state-level wage estimates for home health and personal care aides, used as a benchmark for setting a competitive caregiver wage rather than a specific mandated rate..

The agency-versus-private comparison comes up here too: agency withholding vs direct-hire payroll tax is a real difference in who's managing this step, but it doesn't change the wage floor itself — that applies whether the caregiver comes through an agency or is hired directly.

Step Five: Withhold and Track Every Pay Period

Once the caregiver starts, each paycheck needs the employee's share of Social Security and Medicare tax withheld — unless the household chooses to cover that share itself — plus any income tax withholding the caregiver requests, and hours tracked against whatever wage-and-hour rules apply, including the separate treatment of sleep time and meal periods for a caregiver who lives in 5Ref 5U.S. Department of Labor, Wage and Hour Division (2025).Domestic Service Final Rule Frequently Asked Questions (FAQs).That hours worked by a live-in caregiver, including sleep time and meal periods, have specific treatment under federal domestic-service rules that a household must track correctly when running payroll..

A simple spreadsheet with a running total of hours, gross pay, and withholding covers most of what's needed here; the complexity people expect from this step rarely matches the reality of running payroll for one person.

Keeping those records past the year they're created is worth the small effort — pay stubs, hours logs, and any written pay agreement are exactly what a family would want on hand if a question about the arrangement ever came up later, whether from the caregiver, a state agency, or a tax preparer.

Step Six: File Schedule H and Issue a W-2

At tax time, the household reports the year's Social Security, Medicare, and federal unemployment tax on Schedule H, filed with its own Form 1040, and issues the caregiver a W-2 covering the prior year's wages, typically by the following January 6Ref 6Internal Revenue Service (2026).Publication 926, Household Employer's Tax Guide (for use in 2026).That a household employer reports Social Security, Medicare, and federal unemployment tax on Schedule H filed with Form 1040, and issues the caregiver a W-2 for the year's wages.. There's no separate business return involved for most families paying a caregiver legally — the household's own personal return carries the entire filing.

This is also the step that closes the loop on the earlier decision to run payroll instead of issuing a 1099: the W-2 is the document that confirms, on paper, that the classification and the paperwork finally match.

Doing It Yourself vs. Using a Payroll Service

Running household payroll by hand is entirely possible for one employee — the math involved is not complicated — but a growing number of families use a caregiver payroll service built specifically for household employers, which automates withholding, generates the W-2 and Schedule H figures, and can handle state registration on the family's behalf.

Whether diy household payroll filings or a paid service makes more sense usually comes down to how much the family's own time is worth against the service's monthly fee, not the difficulty of the underlying math. Either path arrives at the same result: a caregiver who's paid correctly, on the record, from the very first check, and a household with a clean answer if anyone ever asks how the arrangement is set up.