Updated December 2025
Every year HomeWork Solutions prepares a summary of new or updated household employment tax laws and benefit information.
The IRS annually reviews, and adjusts as necessary, the wage payment threshold that obligates a family to pay Social Security and Medicare taxes. These tax withholdings are reported annually on a W-2. This threshold will increase to $3,000 for 2026.
Minimum wage under federal law remains at $7.25/hr, but states and local governments continue to set and increase minimum wage requirements at the local level. Be sure you check out minimum wage and other requirements in your state before you negotiate a contract with your employee. Consider how offering a total compensation package including benefits may help both you and your employee minimize taxes.
The One Big Beautiful Bill Act of 2025 (OBBA) created a provision where the overtime premium paid for FLSA-Qualified overtime hours is not taxed for Federal Income Tax. This policy continues in 2026 and through 2028. Keep in mind that the exemption only applies to the overtime premium pay (the "half" of "time and a half), and only for overtime hours actually worked beyond 40 in a week. Further, this state rules vary on taxability of overtime pay, and it is still fully taxable in most states. For more details on this rule and to learn how it impacts your employment arrangement, please read our recent blog post on the topic.
The IRS allows an employer to reimburse healthcare costs to their employee tax free via two Healthcare Reimbursement plans, subject to program guidelines. Qualified Small Employer Healthcare Reimbursement Arrangement(QSEHRA) is capped at $6,450 for individuals or $13,100 for a family in 2026. The Individual Coverage Health Reimbursement Arrangement(ICHRA) has no cap, but employers must ensure that their plan meets affordability rules. For either HRA, the employer must have a written plan (we have you covered there) and the amount of reimbursement offered must be noted on the W-2 form to remain tax free.
> Request a Free QSEHRA Plan Template
> Visit our partners at Take Command Health if you are interested in HRA Administration
Employers may provide a mass transit tax free reimbursement of up to $340 monthly to their household employee, or a monthly reimbursement of up to $340 for parking. Both amounts have been increased by $15 from the prior year.
Eighteen states plus Washington, DC now require some form of paid sick leave, safe leave, or family medical leave. Some states have created Paid Family and Medical Leave programs funded by payroll taxes, while others have advanced regulations that offer PAID leave to employees of smaller employers. In general these laws allow time off to deal with both the employee’s illness and medical appointments, and those of family members. Most laws require employees to make a reasonable effort to schedule paid leave so as not to unduly disrupt the operations of the employer. In other words, notice of medical appointments should be ample and, when possible, scheduled close to the beginning or end of the day. Read more about paid leave laws in your state.
The most common retirement savings vehicles for household employees remain IRAs (Traditional and Roth), SIMPLE IRAs, and SEP IRAs. While the contribution limit on individual IRAs will remain $7,000 in 2025, the limit on SIMPLE IRA Contributions will increase to $17,000 wtih allowable catchup contributions of $4,000 and $5,250 for those over ages 50 and 60 (respectively). The cap on SEP Contributions will be $72,000 in 2026.
The 2026 IRS mileage reimbursement rate has increased to 72.5 cents per mile, up 2.5 cents from the prior year. Business use for a household employee may include running errands for the family and transporting children or a senior to appointments, activities, and school. Routine commuting between your home and place of work is NOT considered business use, and is not typically reimbursed. HWS recommends that mileage reimbursement be included as part of the employee's work agreement when an employee's personal vehicle is used for work purposes.
An increasing number of states and cities are requiring household employers to provide a written employment agreement at the time of hire outlining wages and benefits in English, and a language the household employee understands, if not English. Many other states and localities require that employers disclose in writing pay rates, either via a separate written notice or by outlining on a pay stub. Be sure to visit our tip sheets for household employment rules in your state.
Currently at least 22 states and 23 local governments have salary history bans in place. To find out if you are covered by a salary history ban check here.
Several states also require employers to post salary ranges with any listed position to provide transparency and prevent discrimination in wage negotiations. Maryland is the latest to join this list. You should always post your expected salary range to ensure that candidates who apply are a good match for the skills required and compensation offered.
Compliance with legal payroll tax laws is time consuming for household employers. Find out why so many families outsource this activity to HomeWork Solutions' household payroll tax compliance service.