Are In-Home Care Expenses Tax Deductible? What Families Need to Know

When families begin considering in-home care—whether for a child or an aging loved one—questions about costs come up quickly. One of the most common: Are these expenses tax deductible? The answer is: sometimes, yes. But it depends on your situation and the type of care provided.

Let’s break down what’s deductible, what’s not, and what tax and payroll responsibilities you should be aware of as a household employer.

When In-Home Care Expenses May Be Tax Deductible

For many families, the cost of in-home care may qualify for tax benefits under two main categories:

1. The Child and Dependent Care Tax Credit (CDCTC)

If you're hiring a nanny to care for your child under age 13 so that you (and your spouse, if filing jointly) can work or look for work, you may be eligible for this credit.

• How it works: You can claim up to $3,000 in care expenses for one qualifying child or $6,000 for two or more. Your exact credit on these expenses is determined by a sliding scale based on your household income.
• Who's eligible: The care must enable you to work and must be for a dependent under 13 or a spouse or dependent who is physically or mentally unable to care for themselves.

Important: This is a tax credit, not a deduction—meaning it reduces your tax bill dollar for dollar.

2. Medical Expense Deduction (For Senior or Special Needs Care)

If you employ someone to provide in-home care for a loved one and that care qualifies as a medical expense (e.g., assistance with daily living due to a medical condition), some costs may be deductible as itemized medical expenses.

• Eligibility: The person receiving care must be your dependent, and expenses must exceed 7.5% of your adjusted gross income.
• What’s covered: Nursing care, assistance with daily activities, and some household services if they're part of the overall medical care plan.

Tip: Documentation is key—keep detailed records of the care provided and any diagnoses or recommendations from a medical professional.

What’s Not Deductible

• Wages paid for casual or non-essential babysitting (like a date night sitter)
• Household chores or cleaning not associated with medical care
• Payments made under-the-table—tax benefits require compliant employment

Hiring In-Home Help Makes You a Household Employer

Here’s the part many families overlook: If you pay a caregiver $2,700 or more in 2024, or $2,800 or more in 2025, you’re a household employer with FICA tax obligations. Employers have unemployment tax obligations at even lower thresholds of $500-$1,000 in most states. That comes with a few important responsibilities:

• Paying employment taxes (Social Security, Medicare, unemployment)
• Filing year-end tax documents, like Form W-2 for your employee and a Schedule H for you
• Maintaining compliance with federal and state labor laws

These requirements apply whether you're hiring a nanny for your child or a caregiver for an aging parent.

Many families are surprised to learn that without proper registration and payroll practices, they could face fines, back taxes, or lose eligibility for valuable tax credits.

The Catch: Tax Benefits Are Tied to Compliance

To claim the Child and Dependent Care Tax Credit or deduct medical expenses:

• You must report your caregiver’s wages properly
• You must issue a yearend tax form to your employee and pay your share of employment taxes

This may feel complicated—and this is where HomeWork Solutions can help.

How HomeWork Solutions Makes It Simple

At HWS, we’ve been helping families navigate household payroll and tax compliance for over 30 years. We make it easy:

• We set up Tax accounts and complete new hire reporting
• We set up tax-compliant payroll for your caregiver and advise you on labor laws for your area
• We handle the payroll tax filings

Whether you're just starting your search or already have someone caring for your loved one, we can help you stay organized, legal, and stress-free.

Final Thoughts

Hiring in-home care is a deeply personal decision—and a financial one. The good news? With the right information and support, you can reduce your tax burden and stay compliant as a household employer.

If you're thinking about hiring—or already have—a nanny or senior caregiver, don’t leave taxes and payroll to chance. HomeWork Solutions is here to help.

Let’s chat. Contact us, and one of our payroll and tax specialists will answer your questions and walk you through the right steps to stay compliant with payroll, tax, and labor laws.