Which taxes apply? It depends on who you hire
The IRS treats different family relationships differently. Here's the full picture.
| Relationship | |||||
|---|---|---|---|---|---|
| Spouse | Varies | ||||
| Child under 21 | Varies | ||||
| Child 21+ | |||||
| Parent (most situations) | Varies | ||||
| Parent (widowed/divorced, cares for your child under 18) | Varies | ||||
| Other relative |
Tap a tax to learn more
Spouse
Child under 21
Child 21+
Parent (most situations)
Parent (widowed/divorced, cares for your child under 18)
Other relative
Tap any tax name to learn what it means. NannyKeeper applies these exemptions automatically when you identify the employee as a family member.
Source: IRS Publication 926, Household Employer's Tax Guide. Last reviewed June 2026.
Common family employment scenarios
Three situations we see all the time
Your mom watches your kids
She’s your employee, but her wages are exempt from Social Security and Medicare by default. FICA only applies if your child is under 18 AND you’re widowed, divorced and not remarried, or living with a spouse who can’t care for the child. She’s also exempt from FUTA.
Your spouse helps around the house
Exempt from Social Security, Medicare, and FUTA. But the wages are still reportable income and you’ll withhold federal income tax if they request it on their W-4.
Your adult child (21+) cares for grandma
Standard employment rules apply. Once your child turns 21, all the family exemptions for children go away. Same taxes as any other household employee.
Paying a parent to watch your kids
This is the most common family employment arrangement—and the one with the most questions.
What taxes apply
- Social Security & Medicare — Exempt by default. These only apply if your child (their grandchild) is under 18 or disabled AND you're widowed, divorced and not remarried, or living with a spouse who can't care for the child.
- FUTA — Exempt. You don't owe federal unemployment tax on a parent's wages.
- Income tax — Their wages are reportable income. Withhold if they request it.
Why it's worth doing right
- Reporting the wages lets you claim the Child and Dependent Care Credit on your return
- On-the-books wages can count toward a Dependent Care FSA if you have one through work
- Clear records protect both of you if the IRS ever asks questions
- They may qualify for unemployment benefits if the arrangement ends
“Don't count wages you pay to: Your spouse, Your child under the age of 21, or Your parent.”
Source: IRS Publication 926 (wages exempt from federal unemployment tax)
Why pay a family member on the books?
It's not about compliance fear—it's about the real benefits for both of you.
They can build Social Security credits
When the wages are subject to Social Security, every paycheck adds to their future benefits. This applies to family members who aren’t FICA-exempt, like your child under 21. Spouses and parents are usually exempt, so it depends on the relationship.
You can claim the tax credit
The Child and Dependent Care Credit lets you write off up to $3,000 for one qualifying person ($6,000 for two or more) in care expenses. But only if you report the wages.
They qualify for unemployment
If the childcare arrangement ends—kids start school, your parent can’t continue—they may be eligible for unemployment benefits.
Clear records protect everyone
Proper payroll means proper documentation. If the IRS has questions, you’ll have W-2s, pay stubs, and Schedule H to show everything was done right.
How NannyKeeper handles family employee taxes
We know the rules so you don't have to
Automatic Exemptions
We apply the right tax exemptions based on the family relationship you identify. Spouse, child, parent—each gets the correct treatment automatically.
Accurate Tax Calculations
Every paycheck calculated to the penny, including the exemptions that apply to your specific family situation.
Never-Miss Reminders
Email alerts before every deadline—with the family exemptions already factored in. No guesswork.
Built-In Direct Deposit
Funds transfer automatically on payday. No checks to write or bank runs.
W-2s & Schedule H
Year-end documents generated automatically with the correct wage and tax figures reflecting any family member exemptions.
We Handle Your EIN
Need an Employer ID Number? We apply with the IRS on your behalf—no forms to navigate yourself.
We handle payroll for all types of household employees
Not sure what you owe for a family employee?
Family exemptions change the math. Our free calculator factors in the relationship and shows you exactly what taxes apply—and which ones don't.
Calculate What You OweFree. No signup required.
Hiring a caregiver who isn’t family? See the standard caregiver tax guide.
Family employee tax questions
Yes—if you’re paying her regularly and she’s working in your home, she’s a household employee. You can claim the Child and Dependent Care Credit (up to $3,000 for one child, $6,000 for two or more) as long as you report her wages properly. You can’t claim the credit if you pay cash under the table.