Private Caregiver Hiring and Tax Rules: What Families Need to Know in 2026

Hiring a private caregiver may seem like a straightforward way to save money on home care—until tax season arrives. Many families discover too late that bringing a caregiver into their home makes them a “household employer” with significant legal and financial obligations. Failing to meet these requirements can result in IRS penalties, back taxes, lawsuits, and even criminal prosecution.

This comprehensive guide explains the tax rules, legal requirements, and hidden risks of hiring a private caregiver, and why working with a licensed home care agency often provides better value, protection, and peace of mind for your family.

Understanding Home Care Options

When families need help caring for an aging loved one, they typically choose between two options: hiring a private caregiver directly or working with a licensed home care agency.

Private Caregivers

A private caregiver (also called a direct hire or independent caregiver) is an individual hired directly by your family. You find, screen, hire, pay, and manage all aspects of their employment.

Private caregivers vary widely in training and experience. Some have minimal qualifications, while others hold certifications as Certified Nursing Assistants (CNAs) or Home Health Aides (HHAs). When you hire privately, your family becomes responsible for verifying credentials, conducting background checks, checking references, and ensuring the caregiver is legally authorized to work in the United States.

Home Care Agencies

A home care agency is a licensed organization that employs caregivers and support staff to provide home care services. The agency handles all employment responsibilities, including hiring, training, supervision, scheduling, payroll, taxes, and insurance.

Home care agencies employ professionals at various levels of care, including companion caregivers, CNAs, HHAs, Licensed Vocational Nurses (LVNs), and Registered Nurses (RNs), depending on the client’s needs.

2026 Federal Tax Rules for Household Employers

When you hire a private caregiver, the IRS considers you a “household employer.” This classification triggers specific tax obligations that many families don’t anticipate.

The FICA Tax Threshold (Social Security and Medicare)

For 2026: If you pay a household employee $3,000 or more in cash wages during the calendar year, you must withhold and pay FICA taxes.

For 2025: The threshold was $2,800.

For 2024: The threshold was $2,700.

FICA taxes total 15.3% of cash wages:

• Social Security tax: 6.2% (employer) + 6.2% (employee) = 12.4%
• Medicare tax: 1.45% (employer) + 1.45% (employee) = 2.9%

As the employer, you must pay your 7.65% share and either withhold the employee’s 7.65% share from their wages or pay it yourself.

Important: The Social Security wage base (the maximum earnings subject to Social Security tax) is $184,500 for 2026 (up from $176,100 in 2025). Medicare has no wage cap.

Federal Unemployment Tax (FUTA)

If you pay $1,000 or more in total cash wages to all household employees combined during any calendar quarter, you owe Federal Unemployment Tax on the first $7,000 of wages paid to each employee.

The FUTA tax rate is 6.0%, but state unemployment tax credits typically reduce the effective rate to 0.6% ($42 per employee).

Federal Income Tax Withholding

Unlike FICA and FUTA, you are not required to withhold federal income tax from a household employee’s wages. However, if your employee requests it, you may agree to withhold. In that case, your employee must complete Form W-4.

What Counts as “Cash Wages”?

Cash wages include all payments made by:

• Cash
• Check
• Money order
• Electronic transfer (Venmo, Zelle, PayPal, direct deposit)

Room and board, clothing, and other non-cash items are generally not included in cash wages for tax purposes in household employment.

Required Forms and Filing Deadlines

Becoming a household employer means paperwork—and deadlines matter.

Before Employment Begins

Annual Filing Requirements

Estimated Tax Payments

You can pay your household employment taxes in one of two ways:

1. Increase your own income tax withholding (if you’re employed) by submitting a new W-4 to your employer
2. Make quarterly estimated tax payments to the IRS (Forms 1040-ES)

The IRS recommends electronic payment through IRS Direct Pay or EFTPS (Electronic Federal Tax Payment System).

California-Specific Requirements

California has additional requirements that further complicate household employment. If your caregiver works in California, you must comply with both federal and state laws.

California Employment Development Department (EDD)

California does not allow household employers to pay state employment taxes through their personal income tax return. You must:

1. Register with the California EDD as a household employer
2. Obtain a state employer account number
3. File quarterly wage reports and annual tax returns

California Tax Thresholds

California payroll taxes apply when wages exceed:

• $750 in a calendar quarter (for UI, ETT, SDI)
• $1,000 in a calendar quarter (for PIT withholding requirements)

California State Disability Insurance (SDI)

California is one of five states that require household employers to withhold disability insurance from employees’ wages. For 2025, the SDI rate is 1.2% with no wage cap. This program provides:

• Short-term disability benefits for non-work-related illness or injury
• Paid Family Leave benefits for caring for a seriously ill family member or bonding with a new child

California Minimum Wage (2026)

California’s state minimum wage increases to $16.90/hour on January 1, 2026 (up from $16.50 in 2025). Several cities have higher local minimum wages:

• Los Angeles: Check current rate
• San Francisco: Check current rate
• San Diego: Check current rate

California Domestic Worker Bill of Rights

California’s Domestic Worker Bill of Rights (AB 241 and SB 1015) provides overtime protections for personal attendants. Under this law:

• Personal attendants (caregivers who supervise, feed, and dress individuals who need assistance due to age, disability, or illness) are entitled to overtime pay
• Overtime is calculated at 1.5 times the regular rate for hours worked over 9 hours per day or 45 hours per week
• If a domestic worker spends more than 20% of their time on duties other than direct care, they are not considered a personal attendant, and standard overtime rules apply (over 8 hours/day or 40 hours/week)

California Paid Sick Leave

California requires household employers to provide paid sick leave:

• Employees accrue 1 hour of sick leave for every 30 hours worked
• Employers must allow up to 40 hours (5 days) of paid sick leave annually
• Some cities (West Hollywood, San Francisco, Los Angeles) require more

California Workers’ Compensation

California requires all household employers to carry workers’ compensation insurance. Coverage is required if the employee:

• Has worked at least 52 hours in the 90 days before a potential injury, OR
• Has earned at least $100 during those 90 days

In practice, this means virtually all household employers must have coverage. Options include:

• Adding a rider to your homeowner’s or renter’s insurance policy
• Purchasing through the California State Compensation Insurance Fund
• Obtaining a policy from a private insurer

CalSavers Retirement Program

California’s CalSavers program now applies to household employers. If you employed at least one W-2 household employee in 2024, you must register with CalSavers or file for an exemption by December 31, 2025.

CalSavers is an employee-funded Roth IRA with automatic payroll deductions. Employers don’t contribute—but must facilitate enrollment and deductions.

New Cal/OSHA Protections (Effective July 1, 2025)

Senate Bill 1350, signed in 2024, extended California’s workplace safety protections to domestic workers employed by businesses. While individual homeowners who directly hire workers for typical household tasks (housecleaning, cooking, caregiving, routine gardening) are generally excluded, the law provides broader protections for domestic workers overall.

The Independent Contractor Trap

One of the most common—and costly—mistakes families make is treating their caregiver as an independent contractor rather than an employee.

Why Caregivers Are Rarely Independent Contractors

The IRS uses a “control test” to determine worker classification. A worker is an employee if you control:

• What work is done
• How the work is done
• When the work is done
• Where the work is done

Private caregivers almost always fail this test because:

• You set their schedule
• You determine their duties
• You provide supplies and equipment
• You direct how care is provided
• The work is performed in your home

The IRS explicitly states: If you control what work is done and how it is done, the worker is your employee—regardless of what you call them or how you pay them.

Consequences of Misclassification

If the IRS determines you misclassified an employee as an independent contractor, you may face:

• Back taxes: All unpaid Social Security, Medicare, and unemployment taxes
• Penalties: Up to 100% of the unpaid taxes
• Interest: Compounding from the date taxes were due
• Employee claims: Your caregiver could file for unpaid overtime, benefits, or unemployment
• Criminal prosecution: In cases of willful evasion, the IRS may pursue criminal charges

Case Example: A family privately hired a caregiver for three years, treating her as an independent contractor and failing to withhold taxes. When the caregiver’s employment ended, she filed for unemployment benefits. The state investigated, discovered the misclassification, and reported it to the IRS. The family faced over $15,000 in back taxes, penalties, and legal fees.

The 1099 Myth

Some families believe that issuing a Form 1099-NEC instead of a W-2 makes their caregiver an independent contractor. This is incorrect. The form you use doesn’t determine worker classification—the nature of the working relationship does.

Issuing a 1099 to someone who is legally your employee constitutes a violation and can trigger IRS scrutiny.

Wage and Hour Laws: Overtime Requirements

The Fair Labor Standards Act (FLSA) and state laws govern minimum wage and overtime for household employees.

Current Federal Rules

Under current FLSA regulations (which have been in effect since 2015), home care workers—including those employed by third-party agencies—are generally entitled to:

• Federal minimum wage ($7.25/hour, though state and local rates are often higher)
• Overtime pay at 1.5 times the regular rate for hours over 40 in a workweek

Companionship Services Exemption

There is a limited exemption for workers providing “companionship services”—defined as fellowship, protection, and care—if:

• The caregiver is employed directly by the family (not through an agency)
• Care tasks don’t exceed 20% of total hours worked
• The worker’s primary duties are companionship (conversation, games, walks, and accompaniment)

Important 2025 Regulatory Development: In July 2025, the U.S. Department of Labor proposed a rule that would reinstate broader exemptions for third-party employers (home care agencies). On July 25, 2025, the DOL issued Field Assistance Bulletin 2025-4, instructing investigators to suspend enforcement of the 2013 rule against agencies claiming these exemptions. However, the 2013 rule remains technically in effect pending final rulemaking.

California Overtime Rules

California’s Domestic Worker Bill of Rights establishes different overtime thresholds for personal attendants:

• Overtime after 9 hours/day or 45 hours/week
• Rate: 1.5 times the regular hourly rate

For domestic workers who are NOT personal attendants (those spending more than 20% of their time on non-care tasks), standard California overtime applies:

• Overtime after 8 hours/day or 40 hours/week
• Double time after 12 hours/day

Tracking and Documentation

Families who hire privately must carefully track all hours worked and calculate overtime correctly. Failure to do so can result in:

• Employee lawsuits for unpaid wages
• Department of Labor investigations
• Penalties and back pay awards

Workers’ Compensation and Liability Risks

One of the most significant—and often overlooked—risks of hiring a private caregiver is liability for workplace injuries.

What Happens If Your Caregiver Gets Injured?

If a caregiver you hired directly is injured while working in your home, you are responsible for:

• Medical expenses
• Lost wages
• Rehabilitation costs
• Disability payments (if applicable)

Home care is physically demanding work. Caregivers frequently lift, transfer, and assist clients with mobility. Back injuries, falls, and repetitive strain injuries are common. A single serious injury could cost tens of thousands of dollars—or more.

Homeowner’s Insurance Limitations

Many families assume their homeowner’s insurance will cover a caregiver’s injury. This is often not the case. Standard homeowner’s policies:

• May exclude household employees entirely
• May provide only minimal coverage
• May deny claims if the worker is deemed an employee rather than a guest

Workers’ Compensation Requirements

California and many other states require household employers to carry workers’ compensation insurance. Even in states where it’s not mandatory, having coverage is strongly recommended because:

• It covers medical expenses and lost wages for work-related injuries
• It generally protects you from lawsuits (workers who accept benefits typically waive their right to sue)
• It’s relatively inexpensive compared to the potential liability

Real-World Example: A caregiver with a history of back problems was hired privately to care for an elderly client. While transferring the client, she injured her back severely and required surgery. Because the family had no workers’ compensation coverage, they were personally liable for over $15,000 in medical expenses plus ongoing disability payments—far exceeding what insurance would have cost.

Liability for Harm to Your Loved One

Beyond caregiver injuries, you may also be liable if your private caregiver causes harm to:

• The person receiving care
• Other family members
• Visitors to your home
• Third parties (e.g., in a car accident while transporting your loved one)

Without proper insurance and oversight, these risks fall entirely on your family.

Tax Benefits for Families

Despite the complexity, there are tax benefits that may help offset caregiving costs.

Child and Dependent Care Tax Credit

If you pay for care so you can work or look for work, you may qualify for the Child and Dependent Care Tax Credit. For 2025:

The credit is 20% to 35% of eligible expenses, depending on your income:

• AGI up to $15,000: 35% credit
• AGI $43,000+: 20% credit

Qualifying dependents include:

• A spouse or dependent who is physically or mentally incapable of self-care
• Someone who lived with you for more than half the year

This is a nonrefundable credit—it can reduce your tax bill to zero, but won’t generate a refund.

Medical Expense Deduction

If your loved one requires care due to a chronic illness or disability, some caregiving expenses may qualify as medical expenses. You can deduct unreimbursed medical expenses exceeding 7.5% of your Adjusted Gross Income (AGI) if you itemize deductions.

Qualifying expenses may include:

• Care for someone who is physically or mentally incapable of self-care
• Nursing services and personal care
• In-home care related to a medical condition

See IRS Publication 502 for details on qualifying medical expenses.

Credit for Other Dependents

If you’re supporting a dependent who doesn’t qualify for the Child Tax Credit (such as an elderly parent), you may be eligible for a $500 nonrefundable credit per qualifying dependent.

Dependent Care Flexible Spending Account (FSA)

If your employer offers a Dependent Care FSA, you can contribute up to $5,000 per household (pre-tax) to pay for qualifying care expenses. This reduces your taxable income.

Head of Household Filing Status

If you’re unmarried, pay more than half the cost of maintaining a home, and have a qualifying dependent living with you, you may qualify to file as Head of Household. This provides:

• A higher standard deduction ($22,500 for 2025 vs. $15,000 for single filers)
• More favorable tax brackets

The True Cost of Hiring Privately

When families compare the hourly rate of a private caregiver to agency rates, the private option often appears cheaper. But this comparison ignores the actual total cost.

Hidden Costs of Private Hiring

Risks Not Reflected in Hourly Rates

• Tax penalties if you make mistakes
• Lawsuits for unpaid overtime
• Liability for caregiver injuries
• No backup if your caregiver is sick or quits
• No supervision or quality oversight
• No recourse if problems arise

What You Get with a Home Care Agency

When you work with a licensed home care agency, the agency handles:

✓ Screening and verification — Background checks, reference checks, credential verification, drug testing

✓ Employment taxes — FICA, FUTA, state unemployment, income tax withholding

✓ Insurance — Workers’ compensation, liability insurance, surety bonds

✓ Compliance — Wage and hour laws, overtime calculations, recordkeeping

✓ Supervision — Quality oversight, performance evaluations, care coordination

✓ Backup coverage — Substitute caregivers when your regular caregiver is unavailable

✓ Ongoing training — Caregivers receive continuing education and skill development

✓ Problem resolution — Professional management of any issues that arise

Why Choose a Home Care Agency?

1. Protection from Legal and Financial Liability

When you work with an agency, the agency—not you—is the employer. This means:

• The agency handles all payroll taxes and filings
• The agency carries workers’ compensation and liability insurance
• You’re not personally liable if a caregiver is injured
• You’re protected if a caregiver causes harm

2. Professionally Screened Caregivers

Reputable home care agencies:

• Conduct comprehensive background checks
• Verify credentials and certifications
• Check references
• Perform drug testing
• Ensure legal work authorization

When hiring privately, these responsibilities—and costs—fall on you.

3. Consistent, Reliable Care

Agencies provide:

• Backup caregivers when your regular caregiver is sick or on vacation
• Multiple caregivers to choose from
• Immediate replacement if a caregiver isn’t a good fit
• 24/7 support for emergencies

With a private caregiver, you’re on your own if they don’t show up.

4. Professional Supervision and Accountability

Agencies:

• Monitor caregiver performance
• Conduct regular check-ins and evaluations
• Maintain care documentation
• Address problems promptly and professionally

Private caregivers work without oversight unless you provide it yourself.

5. Ongoing Training

Agency caregivers receive:

• Initial training before placement
• Continuing education
• Updates on best practices
• Specialized training for conditions like dementia

6. Peace of Mind

Perhaps most importantly, working with an agency means you can focus on your loved one’s care—not on being an employer, accountant, and HR department.

Making the Right Choice for Your Family

Hiring a private caregiver may seem more straightforward and cheaper at first glance. But when you factor in:

• Tax compliance requirements
• Legal liability risks
• Insurance costs
• Administrative burden
• Lack of backup and supervision

…the actual cost of private hiring often equals or exceeds agency rates—without the protections and peace of mind an agency provides.

Questions to ask yourself:

• Do I have time to manage payroll, taxes, and compliance?
• Can I afford the liability if something goes wrong?
• What happens if my caregiver quits or gets sick?
• Do I have the expertise to screen and supervise a caregiver?
• Is saving a few dollars per hour worth the risk?

How All Heart Home Care Can Help

At All Heart Home Care, we take the complexity out of home care. As a veteran-owned, nurse-led agency serving San Diego County for over 11 years, we handle everything so you can focus on what matters: your loved one’s well-being.

Our Caregivers Are:

• Thoroughly screened with comprehensive background checks
• Trained and certified professionals
• Fully insured and bonded
• Supervised by experienced care coordinators
• Available when you need them—with backup coverage always available

We Handle:

• All employment taxes and compliance
• Workers’ compensation and liability insurance
• Scheduling and backup coverage
• Ongoing supervision and quality assurance
• Care coordination and family communication

Our Services Include:

• Companion care
• Personal care assistance
• Meal preparation and nutrition support
• Medication reminders
• Transportation and errands
• Light housekeeping
• Respite care for family caregivers
• Specialized dementia care
• 24-hour care
• Post-hospital recovery care

Get Started Today

Don’t navigate the complexities of hiring a private caregiver alone—and don’t put your family at legal or financial risk.

Contact All Heart Home Care at (619) 736-4677 for a free in-home consultation. We’ll assess your loved one’s needs, explain your options, and show you how professional home care can provide better value, protection, and peace of mind.

All Heart Home Care is a veteran-owned, nurse-led home care agency proudly serving San Diego County. We provide professional, compassionate care that helps seniors maintain their independence and quality of life at home. Our transparent pricing and commitment to excellence have earned us recognition as one of the region’s most trusted home care providers.

Key Tax Thresholds Quick Reference

Resources

• IRS Publication 926: Household Employer’s Tax Guide (irs.gov/pub926)
• California EDD: Household Employer Information (edd.ca.gov)
• California Domestic Worker Bill of Rights: dir.ca.gov
• CalSavers: calsavers.com
• IRS Schedule H: Household Employment Taxes
• Form I-9: Employment Eligibility Verification (uscis.gov)