Hiring Your Parent as a Caregiver

Grandma watches the kids three days a week. You've been handing her cash or Venmo-ing her $200 every Friday. Everyone's happy.

But at some point you start wondering — should I actually be paying taxes on this? Is this a real job? And could paying her legally actually benefit both of you?

The answer to all three: probably yes. And the rules are more straightforward than you'd expect.

The Most Common Family Childcare Arrangement

This is, hands down, the question we hear most about family caregiving. And it makes sense — millions of families rely on grandparents for regular childcare. The Census Bureau reports that about one in four preschoolers are regularly cared for by a grandparent.

When that care is unpaid, there are no tax implications. Grandma is just helping out.

But when money changes hands regularly — and especially when it crosses the $3,000 threshold in 2026 — the IRS considers this an employment relationship. Your parent is your household employee, and you're a household employer.

That might sound intimidating. It's really not.

How the Tax Rules Work

The IRS has a specific carve-out in Publication 926 for parents who care for their grandchildren. The breakdown:

Taxes that DO apply

Social Security tax (6.2% each): Both you and your parent pay 6.2% — you as the employer, your parent as the employee. This goes toward your parent's Social Security record.

Medicare tax (1.45% each): Same structure. You pay 1.45%, your parent pays 1.45%.

Federal income tax: If your parent requests it by submitting a W-4, you withhold federal income tax. This isn't mandatory for household employers, but your parent may prefer it to avoid a tax bill in April.

State income tax: Depends on your state. Some states require withholding; others don't.

Taxes that DON'T apply (the exemption)

FUTA (federal unemployment tax): Exempt — but only if the care is for your child who is under age 18 or who has a physical or mental condition that requires the personal care of an adult. This exemption exists because the IRS recognizes that grandparents aren't likely to file for unemployment benefits when the childcare arrangement ends.

State unemployment (SUTA): Most states follow the federal FUTA exemption, but not all. Check your state's rules.

The short version

You pay FICA (Social Security + Medicare) on your parent's wages. You don't pay federal unemployment.

A Real Example With Numbers

Say you pay your mother $200/week to watch your 3-year-old, Tuesday through Thursday. That's $10,400/year — well above the $3,000 threshold.

What the taxes look like:

Your parent takes home about $184.70/week after FICA withholding (before any income tax). Your total cost is about $215.30/week including employer taxes.

That $795.60 in employer taxes comes out to about $15.30/week — the cost of a pizza. And your parent is building Social Security credits the whole time.

Use our household employer calculator to run the exact numbers for your situation and state.

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Why Paying Legally Benefits Your Parent

This is the part that surprises most families. Paying your parent on the books isn't just about following the rules — it can meaningfully improve their financial future.

Social Security credits

Every dollar of reported wages counts toward your parent's Social Security record. The Social Security Administration uses the highest 35 years of earnings to calculate benefits. If your parent has years with low or zero earnings, the wages you pay them can fill in those gaps — potentially increasing their monthly benefit.

For context: a parent earning $10,400/year from childcare would earn 4 Social Security credits per year (you need 40 total to qualify for retirement benefits). If your parent didn't work enough years to qualify, even a few years of reported childcare wages could make the difference.

Medicare eligibility

Social Security credits also count toward Medicare eligibility. Your parent needs 40 credits to qualify for premium-free Medicare Part A. Again — reported wages help.

Work history documentation

Documented employment history can help your parent qualify for certain benefits, loans, or housing programs that require proof of income.

Why Paying Legally Benefits You

Dependent Care Credit

If you're paying your parent to care for your child under age 13 so that you (and your spouse, if married) can work, you may qualify for the Child and Dependent Care Credit on your tax return.

The credit covers up to $3,000 in qualifying childcare expenses for one child, or up to $6,000 for two or more children. The credit percentage ranges from 20% to 35% depending on your income.

For most families paying a parent for childcare: the credit is worth $600–$1,050 for one child, or $1,200–$2,100 for two or more. That often covers more than half the employer taxes you paid.

See our full guide to the childcare tax credit for the complete breakdown.

Dependent Care FSA

If your employer offers a Dependent Care Flexible Spending Account, you can contribute up to $5,000/year in pre-tax dollars to pay for your parent's childcare wages. In a 24% tax bracket, that's $1,200+ in tax savings — potentially more than the credit.

You can't double-dip on the same dollars, though. Any wages covered by the FSA reduce your eligible expenses for the credit.

Proper documentation

Having a clean W-2 and payroll records creates a paper trail that protects you. If the IRS ever asks about your childcare expenses — especially if you're claiming the Dependent Care Credit — you'll have everything in order.

What If Your Parent Lives With You?

It doesn't change the tax rules.

Whether your parent lives in your home, lives across town, or drives 45 minutes to get to your house, the same rules apply. FICA taxes are owed on wages above the threshold. FUTA is exempt (assuming your child is under 18 or has a qualifying condition).

The living arrangement doesn't create any special exemptions or additional obligations.

The Other Scenario: Paying a Parent to Care for Your Other Parent

This is a completely different situation with different rules, and it comes up often.

Say your mother needs full-time care, and you hire your father — her spouse — to provide it. Or you hire your other parent (let's say your dad) to care for your elderly mother.

If you hire your parent's spouse (e.g., your father to care for your mother): The spousal exemption in IRS Publication 926 applies. Wages paid to a spouse are generally exempt from FICA and FUTA. But the wages are still reportable income.

If you hire one parent to care for the other and they're not spouses: Normal household employment rules apply, including FICA. There's no parent-to-parent exemption in this scenario. See our family member taxes guide for the full picture.

If you're managing a parent's care and the parent is the one paying: Your parent is the employer, not you. They'd need their own EIN and would handle (or delegate) the payroll responsibilities. See our senior caregiver payroll guide for how to set this up.

How to Set It Up

Getting this running is a one-afternoon project. The checklist:

Before your parent starts (or as soon as possible if they've already started)

Get an EIN. Apply online at irs.gov/ein — it takes 5 minutes and it's free. Our EIN guide walks through every screen.

Have your parent complete a W-4. This determines whether you withhold federal income tax. Your parent can choose to have no income tax withheld (just FICA), which keeps things simpler.

Have your parent complete an I-9. Yes, even for family. The I-9 verifies work eligibility. It's a legal requirement.

Check your state. Some states require separate employer registration for household employers. Find your state's requirements.

Each pay period

Calculate gross pay, withhold the employee's share of FICA (7.65%), and track everything. A service like NannyKeeper handles all the calculations automatically for $10/month.

Quarterly

Make estimated tax payments to the IRS (and your state, if applicable). Deadlines are January 15, April 15, June 15, and September 15. See our quarterly deadline guide.

Year-end

Issue your parent a W-2 by January 31. File Schedule H with your personal tax return by April 15.

What If You've Already Been Paying Cash?

If you've been paying your parent cash without tracking taxes, you're not alone. This is extremely common with family childcare arrangements.

The right move is to start paying properly going forward. For past wages, you technically owe back taxes — but the IRS is much more interested in future good behavior than in punishing families for common oversights with grandparent childcare.

Read our back pay guide for options on getting current without making the situation worse.

FAQ

Does the $3,000 threshold apply to my parent?

Yes. The threshold works the same regardless of your relationship to the caregiver. If you pay your parent $3,000 or more in a calendar year (2026), you owe Social Security and Medicare taxes on those wages. Below $3,000, no employment taxes are required — though the income is still reportable on your parent's tax return.

Can I pay my parent as an independent contractor instead?

No. If your parent provides childcare on a regular schedule in your home, they're a household employee — not a contractor. The IRS is clear on this. Issuing a 1099 instead of a W-2 for this type of arrangement would be misclassification. See our employee vs. contractor guide.

What if my parent also babysits for other families?

Each family counts separately. If your parent earns $3,000+ from you, you owe taxes on those wages. What they earn from other families is between those families and your parent. Each employer relationship is independent.

My parent is retired and on Social Security. Will these wages affect their benefits?

It depends on their age. If your parent is past full retirement age (66-67 for most people), there's no impact — they can earn unlimited wages without reducing their Social Security benefits. If they're between 62 and full retirement age and already collecting benefits, high enough earnings could temporarily reduce their benefit (but it gets added back later). The Social Security Administration's retirement earnings test has the current thresholds.