Paying Your Adult Child as a Caregiver

Mom needs help at home. You've been doing it yourself, but it's unsustainable. Your sister offered to step in—maybe part-time, maybe full-time—but she'd need to be paid. She's giving up work hours (or a whole job) to do this.

Can you pay your own family member to be a caregiver? Absolutely. Families do it every day. But the IRS treats it as employment, and the tax rules are straightforward once you know them.

Yes, You Can Pay Family to Be Caregivers

The IRS has no problem with family members being household employees. You can hire your adult child, sibling, niece, nephew, or any other relative to provide in-home care. The rules are the same as hiring a stranger—with a few important exceptions for specific relationships.

But first, let's get the big question out of the way:

Who is the employer? The employer is whoever controls the care arrangement and pays the wages. That's typically the person who needs care (your parent) or the family member managing care on their behalf.

*If you manage the care arrangement on your parent's behalf—hiring the caregiver, setting the schedule, paying wages—you may be the employer even though the care is for your parent. This gets complicated. If your parent is mentally competent and makes the care decisions, they're likely the employer (and need their own EIN). Consult a tax professional if it's unclear.

Tax Rules for Adult Children as Caregivers

Here's where it matters whether the caregiver is your child, your parent, your spouse, or another relative.

Adult children caring for a parent

Normal employment tax rules apply. No exemptions. If you (or your parent) pay an adult child $3,000 or more in a year to provide care, you owe:

• Social Security (6.2% employer + 6.2% employee)
• Medicare (1.45% employer + 1.45% employee)
• FUTA (0.6% on first $7,000)
• State unemployment taxes (varies)

The FICA exemption for children under 21 does not apply here. That exemption only covers children under 21 employed by their parent—and in this case, the parent is the person receiving care, not the employer (in most arrangements). Even if the parent is the employer, the caregiver child is an adult, so the exemption doesn't apply.

How this compares to other family relationships

The parent exemption has an exception: if you're a single parent (divorced, widowed, or with a spouse who can't provide care) and have a child under 18, both FICA and FUTA apply.

For the full breakdown of family member exemptions, see our family employee tax exemptions guide.

How the Numbers Work

Elder care wages vary widely. Here's what the tax picture looks like at different levels.

Approximate employer taxes include Social Security, Medicare, FUTA, and estimated SUTA. Actual amounts vary by state.

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

Medicaid Self-Directed Care Programs

Here's something many families don't know: Medicaid programs in most states can pay family members to be caregivers.

These programs go by different names depending on the state:

• CDPAP (Consumer Directed Personal Assistance Program) — New York
• IHSS (In-Home Supportive Services) — California
• Self-Directed Services — various states
• Participant-Directed Services — various states

How they work

1. Your parent qualifies for Medicaid home care benefits
2. The state program allows your parent to choose their own caregiver—including family members
3. A fiscal intermediary (a third-party payroll company contracted by the state) handles payroll, taxes, and benefits
4. Your family member gets a regular paycheck with taxes properly withheld

Why this matters for taxes

When a fiscal intermediary handles payroll, you are not the employer. The intermediary manages all employment taxes, W-2s, and compliance. This removes the tax burden from your family entirely.

If your parent might qualify for Medicaid, it's worth exploring these programs before setting up private-pay employment. Contact your state's Medicaid office or Area Agency on Aging.

What if your parent doesn't qualify for Medicaid?

Then you're in private-pay territory, and the normal household employer rules apply. You (or your parent) are the employer, and you're responsible for all employment taxes.

Setting Up the Employment Relationship

If you're paying a family member privately (no Medicaid), here's how to set it up properly.

1. Determine who's the employer

If your parent is mentally competent and managing their own care: they're the employer and need their own EIN.

If you're managing care on their behalf: you may be the employer. Consider consulting a tax professional for clarity.

2. Get an EIN

Free, 5 minutes at irs.gov. Our EIN guide has screenshots of every step.

3. Complete W-4 and I-9

Yes, even for your sister. The W-4 determines tax withholding, and the I-9 is legally required for all employees—family or not.

4. Set a fair wage

Pay should be comparable to what you'd pay a non-family caregiver in your area. This matters for two reasons:

• IRS scrutiny — Artificially high wages to a family member can be flagged
• Medicaid implications — If your parent may need Medicaid in the future, fair market wages are important for asset/transfer rules

Check nanny pay rates by state for local benchmarks (caregiver pay is similar).

5. Put it in writing

A simple employment agreement that covers:

• Hours and schedule
• Duties and responsibilities
• Pay rate and frequency
• Start date

This protects both sides and documents the arrangement in case of an IRS inquiry.

6. Run payroll and file taxes

The standard household employer process applies. NannyKeeper handles the calculations for $10/month. Quarterly deadlines: January 15, April 15, June 15, September 15. See our quarterly deadline guide.

Can You Deduct the Wages?

Possibly—there are two paths.

Medical expense deduction

If the caregiver provides medical care (not just companionship) and the person receiving care is your dependent (or would be your dependent except for income), the wages may qualify as a medical expense on Schedule A.

Medical care includes: administering medication, wound care, physical therapy assistance, help with medical equipment, health monitoring.

The deduction applies only to the extent total medical expenses exceed 7.5% of your adjusted gross income.

Dependent care credit

If your parent is your dependent, lives with you, and can't care for themselves, you may qualify for the Dependent Care Credit — up to $3,000 in qualifying expenses.

Read our elder care tax benefits guide for the full breakdown.

Common Concerns

"Won't the IRS think this is suspicious?"

Family employment is completely normal and legal. The IRS cares about three things: (1) the work is real, (2) the wages are reasonable, and (3) the taxes are paid. As long as your family member is actually providing care at a fair rate and you're handling payroll properly, there's nothing suspicious about it.

"My sister doesn't want taxes taken out of her pay"

This is a common conversation. But here's what your sister gains from being a proper W-2 employee:

• Social Security credits — directly increases her future retirement benefits
• Medicare credits — builds toward Medicare eligibility
• Unemployment eligibility — if the arrangement ends, she can file for benefits
• Income documentation — for mortgages, car loans, rentals, and credit applications
• Workers' compensation coverage — if she's injured while caregiving

The 7.65% withheld from her pay isn't lost—it's building her safety net. Walk through the math together. Our guide on W-2 benefits for employees covers this in detail.

"Can't I just give her money as a gift?"

You can gift up to $19,000 per person per year (2026) without filing a gift tax return. But if your sister is providing regular care services in exchange for the payment, the IRS will view it as wages—not a gift. Gifts are given freely without expectation of services in return.

If you're paying someone $20/hour, 20 hours a week, to care for your parent—that's employment, regardless of what you call it.

FAQ

Do I need to pay minimum wage to a family member?

Yes. The Fair Labor Standards Act and state minimum wage laws apply to household employees regardless of family relationship. The federal minimum is $7.25/hour (2026), but most states are higher. Check your state's minimum wage →

What if my parent pays my sibling directly from their own bank account?

If your parent controls the arrangement (decides the schedule, directs the care, pays the wages), they're the employer. They'd need their own EIN and would be responsible for employment taxes. If your parent is unable to manage this, you may need to act on their behalf—potentially through a power of attorney.

Can two siblings split the cost of paying a third sibling as caregiver?

Yes, but one person should be the employer of record. The employer files Schedule H, issues the W-2, and handles payroll taxes. The other sibling can reimburse the employer privately. Trying to split the employment relationship across two "employers" creates unnecessary complexity.

Does this affect my parent's Medicaid eligibility?

Paying a family caregiver out of pocket reduces your parent's assets, which could help with Medicaid eligibility (Medicaid has asset limits). However, there are look-back period rules—Medicaid reviews financial transactions from the past 5 years. Payments must be at fair market value for actual services rendered. Consult an elder law attorney before making significant payments if Medicaid planning is a factor.

What if my parent passes away mid-year?

You still owe a W-2 for all wages paid during the calendar year, due by January 31 of the following year. The employer's tax obligations don't end with the employer's death—the estate (or whoever manages the employer's affairs) is responsible for final payroll tax filings, including Schedule H.