Caregiver Payroll for Families Who Hire Privately
Hiring a caregiver directly rather than through an agency usually costs the family less and pays the caregiver more. It also makes someone in the family an employer, with payroll taxes, state registrations and a W-2 to issue. Most families find that out in January. Your bookkeeper can run it properly from the first paycheck, in any state.
When a family becomes an employer
A caregiver hired through an agency is normally the agency’s employee, and the agency handles payroll. A caregiver your family finds and hires directly, who works in your parent’s home on a schedule you set and does the work the way you ask, is almost always a household employee of whoever hired them. Calling them a contractor and paying them on a 1099 does not change that, and the 1099-NEC is a business form a household does not use for personal care in any case.
Federal Social Security and Medicare taxes apply once a household pays one employee $3,000 or more in cash wages in a calendar year (the 2026 threshold; it rises most years). Federal unemployment tax applies once total household wages reach $1,000 in any calendar quarter. A caregiver working even a few shifts a week passes both quickly. The guide to paying a private caregiver legally sets out the rules and the exceptions, including the ones for family members.
Who the employer is
This matters more than families expect. The employer is usually the person who controls the work, and for a parent’s caregiver that is often the parent, paid from their own funds, with an adult child acting on their behalf under a power of attorney. Sometimes it is the adult child, who hires and pays the caregiver directly. The employer’s name goes on the registrations and the household employment taxes go on the employer’s own tax return, so it is worth deciding on purpose. It is a question to settle with your parent’s tax preparer, and your bookkeeper sets payroll up under whichever answer is right for your family.
What the payroll covers
- A federal employer identification number for the household employer
- State registration for unemployment insurance and, where the state has one, income tax withholding
- New-hire reporting to the state, which every state requires
- Each paycheck calculated with Social Security and Medicare withheld, and income tax if the caregiver asks and the employer agrees
- Pay stubs, and a record of hours where overtime rules apply
- Quarterly state unemployment and withholding returns, filed and paid
- The year-end W-2 for the caregiver and the W-3 to the Social Security Administration
- The Schedule H figures for the employer’s tax preparer
It is reconciled every quarter against what was actually paid, so the year-end forms agree with the bank statement and nothing surprises anyone in April.
State rules that catch families out
Every state sets its own unemployment registration rules, and most follow the federal $1,000-a-quarter test, though not all; California’s threshold for household employers is $750 in a quarter. Some states require workers’ compensation insurance for household employees above certain hours, including New York and California. Several states, including New York, California and Illinois, have domestic workers’ laws covering overtime, rest days or paid leave. Federal minimum wage and overtime rules apply to most private caregivers too, and the exemptions for live-in and companionship work are narrower than many families assume.
Your bookkeeper runs payroll in any state and will tell you what your parent’s state requires at the start. Questions about insurance policies or employment contracts go to an insurance agent or an employment attorney.
Getting straight if payroll was never run
Many families come to this after months of paying a caregiver in cash or by check with nothing withheld. That can be put right. The wages already paid are added up from the bank records, the registrations are made, and the missed filings are prepared so the household can catch up. Whether to file amended returns, and how to handle any penalties, is a question for your parent’s tax preparer; your bookkeeper gives them the figures to answer it. Catch-up work is quoted as a deposit and then monthly until the payroll is current.
Paying more than one caregiver
Round-the-clock care often means two or three caregivers on different shifts. Each is a separate employee with separate withholding and a separate W-2, and the unemployment thresholds count all of them together. Payroll handles that the same way it handles one, with each caregiver’s hours and pay recorded so there is no argument later about who worked which weekend.
What it costs
Caregiver payroll is quoted as part of a monthly engagement from $250, usually alongside bill pay for the same parent, because the caregiver’s wages come out of the same accounts and belong in the same reconciliation. The number of caregivers and how often they are paid move the figure.
Say how many caregivers, how often they are paid, which state your parent lives in, and whether payroll has been run so far. The reply within a business day says what it would take.
Common questions
Can we pay our caregiver as an independent contractor?
Rarely. A caregiver who works in your parent’s home, on hours and tasks the family sets, is a household employee under IRS rules in almost every case. The caregiver guide explains the test.
Do I have to pay payroll taxes on a family member who cares for my parent?
It depends who they are and who pays them. Some family relationships are exempt from Social Security and Medicare tax and some are not. An adult child paid by a parent, for example, is generally not exempt. Ask your tax preparer about your exact situation.
What if the caregiver wants to be paid in cash?
Wages can be paid however the caregiver and the family agree, but the payroll still has to be run and the taxes paid. Cash makes the record harder, which is why direct deposit or check is easier for everyone.
Can payroll be set up partway through the year?
Yes. Wages already paid that year are added in so the W-2 is complete.
Which state’s rules apply if I live somewhere else?
Usually the state where the caregiver works, which is where your parent lives.
Related help
- Daily Money Manager Services
- Bill Paying Services for Elderly Parents
- Organizing a Parent's Paperwork
- Online Accounts and Passwords for a Parent
- Monthly Money Reports for the Family
Who this is for
Ask about caregiver payroll
A few lines is enough: who needs the help, what is piling up, and whether anything is urgent. A person replies within one business day to set up a short, free call. Requests answered within one business day · Calls Mon–Fri, 9am–5pm Eastern Or call (888) 833-9039 if you would rather talk first.