How Caregiver Income Gets Taxed

What counts as taxable caregiver income

Money you earn as a caregiver is taxable income in most situations, but the rules depend on who pays you and how the arrangement is structured. If you work for an agency, a home care company, or a facility, your employer reports your wages to the IRS the same way any employer does — you'll receive a W-2 form and taxes are withheld from your paychecks. If you work directly for a family, the rules are different and often misunderstood.

When a family pays you directly to care for a relative in their home, you may be considered a household employee. This matters because household employees have specific tax obligations that differ from regular self-employment. The family is responsible for withholding and paying certain taxes on your behalf, but only if they pay you more than a threshold amount in a calendar year — that threshold changes annually and was $2,600 in 2023, though you should verify the current year's amount with the IRS or a tax professional.

If the family pays you less than the annual threshold, you generally don't have household employment taxes withheld, but you still owe income tax on what you earned. You report this on your tax return, typically using Schedule C if you're self-employed or Schedule 1 if you're reporting other income.

Key Takeaways

• Caregiver wages from an agency or employer are reported on a W-2 and taxed like any job.
• When a family pays you directly, you may be a household employee, which triggers specific tax rules if they pay you above an annual threshold (currently $2,600, but this changes yearly).
• Household employers are responsible for withholding income tax, Social Security, and Medicare taxes if you cross the threshold, but many families don't know this.
• If you earn below the threshold, you still owe income tax but household employment taxes don't apply.
• Keeping records of hours, dates, and pay is essential because the IRS may ask for proof if your income is reported inconsistently.

Household employee taxes when a family pays you directly

If you work directly for a family caring for their child, parent, or disabled relative, and they pay you more than the annual threshold, they become your employer for tax purposes. This means they must withhold federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) from your pay. They also pay their own share of Social Security and Medicare taxes — this is called the employer's portion and comes out of their pocket, not yours.

The family should give you a W-2 form by January 31 of the following year, just like any other employer. If they don't, or if they report incorrect amounts, you can contact the IRS to report the discrepancy. Many families are unaware of these obligations, which creates confusion and sometimes puts caregivers in a difficult position. If you suspect the family should be withholding taxes but isn't, you can ask them directly or contact a tax professional for guidance on your options.

Some families try to avoid these taxes by paying you "under the table" or by misclassifying you as an independent contractor. This puts you at risk: you lose Social Security credits, you may owe a large tax bill at tax time, and you have no unemployment insurance or workers' compensation protection if you're injured on the job.

Self-employment taxes if you work for yourself

If you're genuinely self-employed — meaning you set your own rates, choose your clients, and control how you work — you report your income on Schedule C (Profit or Loss from Business). You pay both the employee and employer portions of Social Security and Medicare taxes, which together are called self-employment tax. This is roughly 15.3% of your net earnings, though you can deduct half of it from your income tax.

Self-employment tax is higher than what a household employee pays because you're covering both sides. However, being self-employed also means you can deduct legitimate business expenses — mileage, supplies, training, a portion of your phone bill if you use it for work — which reduces your taxable income. Keep receipts and a log of these expenses.

The line between being a household employee and being self-employed can be blurry. The IRS looks at factors like whether the family controls how you work, whether you work for other families, whether you set your own hours, and whether you provide your own equipment. If you're unsure which category applies to you, a tax professional can review your situation.

What to report on your tax return

If you received a W-2, you report the income on Form 1040 (your main tax return) in the wages section. The W-2 shows federal tax already withheld, so you may get a refund if too much was taken out, or you may owe if too little was withheld.

If you're self-employed and didn't receive a W-2, you report your income and expenses on Schedule C, then transfer the net profit to Schedule 1 and Form 1040. You'll also need to file Schedule SE to calculate your self-employment tax. If you earned less than $400 in net self-employment income, you generally don't have to file Schedule SE, but you should still report the income.

If you earned below the household employee threshold and the family didn't issue a W-2, you still report the income on your tax return. You can use Schedule 1 to report other income, or if you have multiple caregiver clients and consider yourself self-employed, use Schedule C instead. The key is reporting what you actually earned, even if no one sent you a tax form.

Deductions and credits that may reduce what you owe

As a caregiver, you may be able to claim the Earned Income Tax Credit (EITC) if your income is below certain limits and you meet other requirements. This credit can result in a refund even if you owe no tax. The income limits and credit amounts change yearly, so check the IRS website or use tax software to see if you may have access to.

If you're self-employed, you can deduct business expenses like mileage to clients' homes, training or certification courses, uniforms or protective equipment, and a portion of internet or phone costs if you use them for work. You cannot deduct personal expenses or the cost of getting to and from work in general, but mileage to specific client locations counts as a business expense.

If you pay for dependent care — for example, childcare for your own children while you work — you may be able to claim the Dependent Care Credit or use a Dependent Care FSA if your employer offers one. These reduce your tax bill or let you set aside pre-tax money for care expenses.

Record-keeping and what the IRS may ask for

Keep records of all caregiver income you receive: pay stubs, bank deposits, cancelled checks, or written agreements showing dates and amounts. If you're self-employed, also keep a log of hours worked, clients served, and dates. The IRS may ask for these records if your return is audited or if income is reported inconsistently — for example, if a family reports paying you a certain amount but you report a different amount.

If you work for multiple families or agencies, keep separate records for each one. This makes it easier to track income and expenses and to respond quickly if there's a discrepancy. Digital records (photos of pay stubs, spreadsheets, bank statements) are just as acceptable as paper, and they're easier to organize.

If a family or agency fails to send you a W-2 or 1099 form by January 31, contact them and ask for it. If they don't respond, you can file your tax return anyway using the income records you have, and you can report the missing form to the IRS using Form 13909 (Information Referral).

State and local taxes on caregiver income

In addition to federal taxes, you may owe state income tax on caregiver wages. Most states tax wages the same way the federal government does — your employer withholds it, or you pay it when you file your state return. A few states have no income tax, so check your state's tax agency website to understand your obligations.

Some cities and counties also impose local income taxes or earnings taxes. If you work in a city different from where you live, you may owe tax to both jurisdictions. This is less common but does apply in places like New York City, Philadelphia, and parts of Ohio. Your employer should withhold these taxes if they apply, but if you're self-employed, you're responsible for calculating and paying them yourself.

Frequently Asked Questions

Do I have to pay taxes if I'm paid in cash?

Yes. Income is taxable whether it's paid in cash, check, direct deposit, or any other form. The IRS requires you to report all income on your tax return. Paying in cash doesn't make income tax-free, and it doesn't protect you from owing self-employment tax or household employment taxes if those apply.

What if the family says they'll pay me more if I don't report it?

This is a common offer, but it puts you at serious risk. Unreported income can trigger an audit, penalties, and interest. You also lose Social Security credits, which affects your future benefits. It's better to negotiate a fair wage that you report honestly than to accept a higher cash payment that creates tax problems later.

Can I deduct childcare costs if I'm a nanny?

If you're a nanny and you pay for your own childcare while you work, you may be able to claim the Dependent Care Credit for those expenses. However, you cannot deduct the cost of caring for the children in the family you work for — that's part of the service you're providing, not a business expense.

What happens if I don't file a tax return?

If you owe taxes and don't file, the IRS can assess penalties and interest, and the debt doesn't go away. If you're owed a refund and don't file, you lose that money — the IRS doesn't send refunds without a return. Filing, even if you owe, is always better than not filing.

How do I know if I'm a household employee or self-employed?

The family controls how, when, and where you work if you're a household employee. You're self-employed if you set your own hours, work for multiple families, provide your own supplies, and control the details of how you do the job. If you're unsure, a tax professional can review your situation and advise you on how to report your income correctly.