Understanding taxes for home caregivers

Working in somebody else’s home as a caregiver or hiring a caregiver to take care of your loved ones can add extra confusion when determining tax filing requirements. Are you, as the caregiver, a household employee? Are there any tax benefits for employees and employers? If you’re an in-home caregiver or considering hiring one, keep reading as we outline caregiver tax responsibilities and other things you should know about taxes for home caregivers.

Caretaker vs caregiver: What’s the difference?

First, let’s define what a caregiver is and how it’s different from a caretaker. In-home caregivers provide essential services for individuals or families. They directly care for the elderly, children, or someone with chronic illnesses. In-home caregivers provide emotional, physical, and psychological support to those in their care. On the other hand, a caretaker is typically more responsible for the maintenance, upkeep, or protection of an animal, person, or property, and they aren’t necessarily trained in emotional or medical support. It’s important to know the difference between hiring the right person for your loved one and better understanding your role for tax purposes. So, let’s dive into the rules and responsibilities for caregivers.

IRS rules for caregivers and household employers

When it comes to in-home caregiving, there are generally two routes to take:

1. Work with a licensed home care agency
2. Hire an independent in-home caregiver

If you are a caregiver and choose to work for or with a licensed caregiver agency, you could be considered their employee. If you are an employee, the agency is responsible for paying employees and for withholding the caregiver’s taxes. If you choose to be an independent home caregiver, you will likely be considered a household employee and have different tax filing responsibilities. Your employer will also have more involvement in your taxes.

The Internal Revenue Service (IRS) has specific rules for household employees and employers. It’s important to understand your tax obligations as the caregiver and the employer as a misclassification can lead to significant penalties.

Household employee vs independent contractor

When it comes to taxes, caregivers who do not work for a licensed agency need to determine if they are considered household employees or independent contractors, as each comes with different filing requirements. Most caregivers will be considered household employees (if not working for or hired from a licensed agency), but here’s a summary according to the IRS:

In-home caregiver as a household employee

You will be considered a household employee if you are hired to perform or complete household work and if you are an employee. You are an employee if your employer dictates what work you do, how you do it, and when. For example, if you adhere to your employer’s specific schedule each week and your employer has set rules for how your caregiving should be performed, you are most likely a household employee. This is because the IRS partially determines your employment status based on your employer’s level of control and direction. You will be considered an employee regardless of whether you work full-time or part-time or are hired through an agency or from a list from an agency.

Household employees must file different forms than independent contractors, many of which will be completed before starting work.

1. Provide a completed Form I-9 to your household employer to ensure you’re qualified to work in the U.S.
2. Provide a completed W-4 form and state income tax withholding forms. Accurately complete your name, address, and Social Security or ITIN to your household employer. (Resource: Here’s how to fill out a W-4 form.)
3. Complete your federal income tax return using Form W-2, which will be provided by your employer.

In-home caregiver as an independent contractor

Even though you most likely will be considered a household employee, it is possible to be a self-employed caregiver. Self-employed caregivers control how the work is performed, offer services to the public, and tend to have multiple families in their care. Generally, independent contractors go to someone’s home, bring their own supplies and goods, and are responsible for selecting when they work. In this case, they won’t qualify as having an employee-employer relationship.

If you don’t meet the household employee definition, then you’re an independent contractor. In that case, you may receive Form(s) 1099-NEC, 1099-MISC, and possibly 1099-K (if paid digitally) throughout the year. As an independent contractor, you’re responsible for paying self-employment taxes. Learn more about self-employment taxes.

Withholding and paying caregiver taxes

So, if you’ve hired a caregiver classified as a household employee, what are your tax responsibilities as the employer? Whether you need to withhold and pay taxes on the caregiver’s wages depends on the amount of pay the caregiver receives during the year. Neither you nor the caregiver will have to pay Medicare or Social Security taxes if the caregiver’s wages are below the federal threshold.

For the 2023 tax year, if you paid a caregiver $2,600 or more, you must withhold and pay Medicare and Social Security taxes on their wages. For the 2024 tax year, that threshold increased to $2,700 or more. Caregiver employees and their employers both must typically pay 7.65% of the employee’s wages in Medicare and Social Security taxes, for a total of 15.3%.

If you paid a caregiver more than $1,000 in any calendar quarter during the year, you must also pay federal unemployment taxes (FUTA) on the caregiver’s wages. FUTA is 6% of the first $7,000 paid to the caregiver. FUTA is paid solely by the employer.

Household employers must file Schedule H with their annual tax return if they pay wages over the income Medicare/Social Security thresholds listed above if they pay FUTA wages, or if they withhold federal income tax on wages paid to the household employee. The household employer is also responsible for filing Form W-2 if they paid Medicare/Social Security wages over the threshold.

Tax credits for household employees

Household employees ( and any other taxpayer) may qualify for the Earned Income Tax Credit (EITC). The EITC is a tax break for low- to moderate-income workers that can reduce your tax bill. However, this credit has specific income qualifications, so speak to a tax expert to ensure you’re eligible first.

Tax deductions and credits for hiring an in-home caregiver

Hiring an in-home caregiver may seem like a daunting endeavor. But the good news is there are some tax deductions and credits related to caregiver expenses you can take advantage of. Although the IRS has stated that you cannot claim the Child and Dependent Care Credit and receive a Medical Deduction for the same expense, you can consider both to see which will result in the most potential savings.

You may be eligible for the Child and Dependent Care Credit if you paid a caregiver to provide services to one of the following:

• A dependent child who is under the age of 13
• A spouse who lived with you for more than half the year and is physically or mentally unable to take care of themselves
• A person who lived with you for more than half the year who cannot physically or mentally care for themselves and was or could be your dependent

For 2023 returns, the credit is worth up to $3,000 if the caregiver cared for one qualifying individual and up to $6,000 if they cared for two or more qualifying persons.

You may also be able to deduct caregiver wages as medical expenses if you itemize your deductions, but certain conditions must first be met.

• The caregiver is providing services prescribed by a licensed healthcare practitioner.
• The medical expenses must be for your dependent (including a qualifying adult dependent).

Are home modification expenses tax-deductible?

An extra bonus? The IRS also allows you to deduct expenses for medically necessary home modifications if these changes aren’t meant to increase the property’s value. Qualifying modifications include:

• Building entrance ramps
• Widening doorways and hallways
• Lowering countertops or modifying kitchen equipment
• Adding railings or support bars to hallways, bathrooms, or other rooms

What if the caregiver is a family member?

If your caregiver is also a family member, special rules may apply. The caregiver’s income may be reported as self-employment income instead of following the household employee rules. If you care for a family member, consider talking with a tax professional to understand your individual circumstances.

Where to go for more help with home caregiving taxes

Understanding your tax responsibilities as a caregiver and caregiver employer can be confusing. Block Advisors can help you sort through the laws and regulations associated with in-home caregiver taxes. Speak with a certified small business pro today.

This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice. 

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