Getting help in place for an aging parent is no small thing. It usually takes months of careful thought, hard conversations, and a lot of logistical coordination. If you've made it to the point where someone is showing up to help your mom or dad get through their day safely, that's worth acknowledging.
Now there's one more piece to figure out, and it's one most families aren't expecting: how to pay that caregiver correctly. When you hire someone to work in a family member's home, you're likely an employer in the eyes of the IRS and your state. The good news is that doing this the right way protects everyone involved, including you, your caregiver, and your parent.
Here's a calm walkthrough of what you need to know.
Is Your Caregiver an Employee or a Contractor?
This is the first question most families ask, and the answer almost always comes out the same way. In-home caregivers who work on a schedule you set, in a home you're responsible for, doing tasks you direct, meet the IRS definition of a household employee. That classification matters because it determines what taxes apply and who's responsible for them.
The good news: once you know you're in employer territory, the path forward is clear. It's just a matter of getting the right things set up.
Who Is the Employer?
In most senior care situations, the employer is the adult child or family member who arranges and pays for the care, not the parent receiving it. If you're the one funding the wages, you're likely the one with the payroll and tax obligations. This matters for how accounts are set up and whose tax return the related filings land on. On the other hand, if your parent is funding the wages and directing their own caregiver, they are likely the employer in the eyes of the law.
When Payroll Taxes Apply
In 2026, the federal household employment tax threshold is $3,000. Once your caregiver earns $3,000 or more in a calendar year, FICA taxes (Social Security and Medicare) apply retroactively back to the very first dollar you paid. Given what most families pay for full or part-time in-home care, you'll reach that threshold quickly. Setting up payroll from the start means you're never playing catch-up.
A note on what "paying legally" does for your caregiver: Every properly reported paycheck builds your caregiver's Social Security and Medicare credits, gives them access to unemployment benefits when the job ends, and provides documented income they can use for housing or loans. Workers' compensation coverage is also only available when wages are paid on the books. It's one of the most meaningful ways to support the person supporting your family.
What You Need to Set Up
Once you know who the employer will be, here are the concrete steps to get things in order. HomeWork Solutions happily takes care of these steps for you.
- You’ll need an Employer Identification Number (EIN). This is your tax ID as an employer. It's free from the IRS and can be done online in about 10 minutes.
- Register with your state. Most states require employers to register separately for state income tax withholding and unemployment insurance. Requirements vary, so check what applies where your parent lives.
- Set up payroll. Each pay period, you'll track gross wages, withhold your caregiver's share of FICA taxes, and withhold any income taxes at the federal, state, and local level per the instructions on tax authority withholding forms, such as the W-4. You'll also set aside the employer portion of FICA. At year-end, you'll issue a W-2 and file Schedule H.
- Look into workers' comp. Many states require household employers to carry workers' compensation insurance. Requirements vary by state, and sometimes even by the number of hours worked, and it's worth confirming what applies in your situation before the first day of work.
If Medicaid Is Part of the Picture
For families where your parent is on Medicaid or you're planning ahead for it, one extra note: Medicaid has a five-year look-back period that reviews financial transactions. Paying a caregiver properly, with documented wages and taxes, keeps that record clean. It's one more reason that getting payroll right from the start is worth the effort.
If Medicaid planning is active, loop in your elder law attorney alongside your payroll setup so everything stays coordinated.
You Don't Have to Figure This Out Alone
Household payroll for senior care sits at the intersection of tax law, state employment rules, and often benefits planning. Most families aren't expected to know all of this, and you shouldn't have to become an expert in it on top of everything else you're managing.
HomeWork Solutions works specifically with families in this situation. We'll help you get set up correctly from the start and handle the ongoing payroll so you can focus on what matters most. Reach out anytime and let's talk through where you are.