Yes, You Need to Withhold Taxes for Your Caregiver

If you’re like most families, most conversations around care center on whether you want to hire privately or through an agency, and how to find a caregiver who matches your unique care needs.

When a loved one’s care is on the line, you want a caregiver who is trustworthy, capable, and a good personality fit. But then comes the important discussion of payment.

Not the caregiver's general compensation, but how to pay them legally and compliantly.

Even if a privately hired caregiver requests cash payment, that’s not compliant with the IRS. A private caregiver must be a W-2 employee of your household. It sounds complicated, but it doesn’t have to be. We’ll explain how to withhold taxes for your caregiver and where an experienced domestic payroll advisor can help.

What the IRS Says About Paying Your Caregiver

The IRS classifies caregivers as household employees, which broadly covers “someone hired to do household work,” with a few key distinctions.

For one, a person is a household employee if they do not control what work is done or how it is done. For example, a house cleaner who works independently, has multiple clients, and uses her own supplies is not a household employee. But a caregiver who follows your specific instructions and uses your supplies is.

That distinction matters to the IRS, which is why paying a caregiver in cash isn’t legal.

Will the IRS Find Out if You Pay Your Caregiver in Cash?

All it takes is for your caregiver to file for unemployment or workers’ compensation for the IRS to find out that they’ve been paid incorrectly and for you to owe penalties for their misclassification.

Suppose you hire a caregiver, Maria, to care for your mother or father.

Maria asks you to pay in cash, but one icy morning, Maria slips and falls on your front walkway, sprains her ankle, and misses work. Unable to work, she files a workers’ compensation claim, and during the investigation, the New York Workers’ Compensation Board finds that you were required to carry workers’ compensation insurance for Maria as a household employee but failed to do so.

They also found that you did not pay unemployment insurance, taxes, or other payroll obligations, which are passed on to the other taxing authorities.

In addition to the costs associated with Maria’s workplace injury, you are also responsible for unpaid unemployment insurance contributions, interest, and applicable penalties. Plus corrections to years of payroll records and tax obligations.

It’s simply not worth risking paying your caregiver without a W-2.

How to Withhold Taxes for Your Caregiver

Withholding taxes sounds technical, but it’s mostly administrative work others can do. Follow these steps to set up your caregiver as an employee of your household:

• Get an EIN for yourself as a household employer. Do not use your SSN.
• Have the caregiver complete Form I-9 to verify they can work in the U.S.
• Collect a W-4 if from the caregiver.
• Register with your state.This guide lists the steps for New York, and this guide lists the steps for New Jersey.

And then, make sure to either withhold (or pay yourself) the following:

• Social Security and Medicare (FICA). These apply to household workers you pay $3,000 or more in cash wages in 2026. You pay 7.65% as the employer, and you can withhold the same amount from their pay. Or you can pay their share yourself and not withhold.
• Federal income tax. You aren't required to withhold it from a household employee. You only withhold if the employee asks and you agree.
• Federal unemployment (FUTA). This applies if you pay $1,000 or more in total household wages in any calendar quarter.

It sounds like a lot of work, right?

Fortunately, you do not have to manage this entirely on your own.

At LeanOnWe, we have years of experience matching families with the right caregiver, and we partner with experienced payroll domestic employment advisors.

One of our partners, HomeWork Solutions, has 30+ years of experience helping families manage and pay household staff compliantly. Our domestic employment payroll partners can assist you with the steps above, including:

• Applying for and receiving an EIN
• Tax account setup
• Calculating and processing pay
• Withholding and remitting payroll taxes
• Unemployment insurance compliance
• Maintaining payroll records and documentation
• Workers' compensation or other insurances
• Filing federal, state, and local tax forms
• Creation of year-end documents (such as W-2s, associated filings, and Schedule H)

While the primary mission of LeanOnWe is helping you find the ideal caregiver for your unique needs, our service includes access to professional domestic payroll partners who can ensure you pay your caregiver legally and in compliance with all federal, state, and local laws. Setting it up right from the start can ultimately save your family thousands of dollars (if not tens of thousands of dollars) in the long run. Better to be smart than sorry!

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