Tax considerations when you hire a household employee

Hiring someone to help in your home changes more than your daily routine, it also places you in the role of a household employer, which comes with its own tax responsibilities. When you hire a caregiver, chef, cleaner or other domestic employee, federal tax rules apply as soon as their pay crosses certain thresholds. Understanding these rules early makes the year smoother for both you and your employee. 

Understanding the Social Security and Medicare threshold

A core concept is the Social Security and Medicare coverage threshold. For most workers, every dollar of wages is covered; however, domestic employees are an exception. Federal law establishes wage-indexed thresholds that are adjusted in accordance with the national average wage index.

For the year 2026, the coverage threshold is $3,000. This means if you pay less than $3,000 during the year:

• Wages are not subject to Social Security or Medicare taxes
• Wages do not count towards the employee’s future benefits

Once the threshold exceeds that amount:

• FICA, Federal Insurance Contributions Act: 6.2% for Social Security and 1.45% for Medicare
• You pay these rates and withhold the same from the employee 

Employee vs. independent contractor

Whether you hire an employee or consider them an independent contractor will be based on the facts and circumstances. The IRS Publication 926 lays out the details, and it is worth revisiting each season. It tells you how to determine whether your worker qualifies as a household employee. 

The general rule is straightforward: You control what work is done and how it is done. Independent contractors set their own methods, bring their own business structure and maintain their own schedule. A household employee, by contrast, works in your private home under your direction. This difference matters because contractors handle their own taxes, while employees require you to withhold and pay employment taxes.

A worker is a household employee if: 

• They perform work in your home
• You control what work is done and how it is done 

A worker is likely an independent contractor if: 

• They control how the work is performed
• They run their own business
• They set their own schedule and bring their own tools

Federal income tax withholding

Once you confirm that your worker is an employee, the next step is to look at federal income tax withholding. Unlike a business, a household employer does not need to withhold federal income tax unless the employee asks you to and provides a Form W-4, Employee’s Withholding Certificate. Many domestic workers prefer withholding, so their tax bills stay predictable. If you agree to withhold, you must handle the amounts the same way any employer would.

Household employers are NOT required to withhold federal income tax unless:

1. The employee requests withholding
2. They provide a completed Form W-4

Many domestic workers prefer having withholding to avoid tax bills. If you agree to withhold taxes, you must follow standard employer rules. 

Federal unemployment tax (FUTA)

FUTA generally applies if you pay a household employee $1,000 or more in any calendar quarter. The tax is 6% on the first $7,000 of wages. Many employers qualify for the 5.4% credit for state unemployment contributions, bringing the net federal rate down to 0.6%. IRS Topic 756 explains these rules in plain language and offers additional reminders about filing and payment deadlines.

FUTA basics:

• Tax rate is 6% on the first $7,000 of wages
• Credit is up to 5.4% for state unemployment contributions
• Net federal rate for most employers is 0.6%

Filing requirements forms 

At tax time, household employment taxes appear on Schedule H, Household Employment Taxes, which you file with your Form 1040, U.S. Individual Income Tax Return. Schedule H gathers your Social Security, Medicare and FUTA amounts in one place. If you use payroll software or a household payroll service, you may already receive the calculations you need. You must also provide Form W-2, Wage and Tax Statement, to the employee and file it with the Social Security Administration. This step often feels more formal than people expect, but it ensures your worker receives proper wage credit for Social Security and Medicare.

If you use payroll software or a household payroll service, they may provide the numbers for you and will provide the household employee with Form W-2 as well as file Form W-2 with the Social Security Administration. This form ensures the employee receives the correct wage credit for Social Security and Medicare benefits. 

Recordkeeping essentials

Recordkeeping is another practical part of this role. Keep careful notes of hours worked, wages paid, withholding agreements, and tax payments. Good records support accurate filings and help prevent mismatches with the IRS or Social Security Administration. They also give your employee confidence that you are handling their pay and benefits correctly.

Final thoughts

Bringing help into your home can add stability and support to your family. Handling the tax side correctly ensures the relationship starts on the right foot. With updated 2026 thresholds and clear IRS guidance available, household employers can prepare with confidence and stay ahead of the paperwork.