How to Classify a Caregiver for Tax Purposes

If you employ an in-home worker like a nanny, senior caregiver, housekeeper, or private chef, understanding how to classify your worker correctly is crucial. Classification affects your obligations as an employer—especially when it comes to taxes.

Let’s break down two important but distinct topics:

1. How to determine if your caregiver is an employee or an independent contractor.
2. What tax obligations you have as the employer of a household employee.

Step 1: Classifying the Worker — Employee or Independent Contractor?

The IRS and Department of Labor use several factors to decide whether a worker is an employee or an independent contractor. This is more than a paperwork detail—it’s about control, relationship, and the nature of the work.

Key factors include:

• Degree of control: Do you control how, when, and where the work is done?
• Permanence: Is this an ongoing working relationship?
• Financial investment and profit: Does the worker have an opportunity for profit or loss, and do they invest in their own tools or business?

In a household setting, most caregivers—including nannies, senior aides, housekeepers, cooks, and personal assistants—are considered employees because you usually define their duties, schedule, payment, and they cannot send in a substitute worker on their behalf.

Even if your caregiver has flexibility, if you have the right to control their work, the government sees them as your employee.

Step 2: What Are Your Tax Obligations as a Household Employer?

Once you’ve determined your worker is as an employee, the IRS requires you to fulfill specific tax responsibilities, known collectively as household employment taxes (often called “nanny taxes”). Most of these obligations come into play if you pay an employee $2,800 (2025) or more in a year. Unemployment tax obligations are lower at $1,000 in wages paid per quarter at the federal level, and as low as $500 at the state level, depending on your location.

These obligations include:

• Obtaining an Employer Identification Number (EIN) for your household tax filings.
• Keeping payroll records and issue a W-2 form to your employee every year.
• Withholding Social Security and Medicare taxes from your employee’s wages, or funding them their share.
• Paying the employer’s share of Social Security and Medicare taxes (7.65% of wages).
• Paying federal and state unemployment taxes (FUTA and applicable state programs).
• Providing workers’ compensation insurance where required by state law.

You cannot avoid these obligations by treating your caregiver as an independent contractor and issuing a 1099 form if they meet the employee criteria. Misclassification risks fines, penalties, and back taxes.

Common Misclassifications to Avoid

• Agency-provided caregivers: If you hire a caregiver through an agency that controls payment, work terms, and payroll, the agency—not you—is the employer. Always confirm this arrangement in writing to avoid co-employer liability.
• Licensed professionals: Therapists or nurses working independently in your home are often independent contractors, as they control their work and carry their own insurance.
• Family members: Generally, you do not owe employment taxes for paying your spouse, children under 21, or parents under certain conditions.

Why This Matters

Proper classification and tax compliance protect both you and your caregiver. It ensures:

• Your caregiver earns Social Security and Medicare benefits.
• You avoid audits, fines, and unexpected tax bills.
• Your working relationship is built on trust and respect.

How HomeWork Solutions Can Help

Navigating caregiver classification and household payroll can feel overwhelming—but you don’t have to do it alone.

HomeWork Solutions offers expert, personalized payroll and tax services tailored for busy families like yours. We handle all nanny tax requirements accurately, so you can focus on what really matters, your family.

Get a free consultation and learn more about our services here.

For Further Reading

• IRS Publication 926: Household Employer Tax Guide
• Department of Labor Worker Classification Guidance