Paid to Care for a Family Member? Employee or Self-Employed Rules for Caregivers
The IRS explains when a family caregiver is an employee, when pay is just reported income, and when self-employment tax and Schedule C apply.
In Tax Tip 2026-70 (Sept. 22, 2026), the IRS reminds taxpayers that family members who are paid to take care of a loved one may have tax responsibilities. What those responsibilities are depends on one question: is the caregiver an employee, or does the caregiver provide services as their own business? For preparers and small-business clients, getting that answer right shapes which forms are filed and which taxes apply.
When a caregiver is considered an employee
The IRS describes a caregiver as someone who performs in-home services for elderly or disabled individuals. Generally, the caregiver is considered an employee and the person being cared for is considered the employer. That can make the person being cared for responsible for employment taxes.
There are cases in which the employer may not owe employment taxes. The IRS gives these examples, where the caregiver is:
- The employer's spouse
- The employer's child under the age of 21
- The employer's parent, unless an exception applies
- An employee who is under the age of 18 at any time during the year, unless an exception applies
One point is easy to miss. Even when no employment taxes are owed, the employer must still report the caregiver's compensation on Form W-2. For more detail, the IRS points to Table 1, "Do You Need to Pay Employment Taxes," on page 5 of Publication 926, Household Employer's Tax Guide.
When a caregiver isn't considered an employee
Sometimes a caregiver is not an employee. Even then, the caregiver must report the compensation as income on Form 1040 or 1040-SR. Self-employment tax may also apply, depending on the facts and circumstances.
The IRS gives two examples of a family caregiver who typically would not owe self-employment tax:
- A family member is paid by an insurance company to take care of their spouse. The income still has to be reported.
- A family member receives income from a state agency to care for their grandchildren so their daughter can work. Again, the income still has to be reported.
When self-employment tax may apply
If the caregiver is engaged in a trade or business providing care services, the caregiver must pay self-employment tax. The IRS example: a caregiver receives income from a state agency to care for their grandmother. The same caregiver also runs a sole proprietorship adult day-care business in their home, with multiple clients, including the grandmother.
In that case the caregiver owes self-employment tax, because they are engaged in the trade or business of providing caregiving services as the sole proprietor of an adult day-care. They must report the full amount of the payment as income on both Schedule C and Schedule SE.
What preparers can tell clients
Based on the IRS tip, these are the points worth covering with a client who is paid for caring for a relative, or who pays a relative for care:
- Find out who is paying the caregiver (the person cared for, an insurance company, a state agency) and how the caregiver is related to the person being cared for.
- Decide whether the caregiver is an employee of the person being cared for. If so, that person is generally the employer and may have employment tax responsibilities.
- Check whether one of the listed cases applies, such as a spouse, a child under 21, a parent (unless an exception applies), or an employee under 18 at any time during the year. Employment taxes may not be owed in those cases, but Form W-2 reporting is still required.
- If the caregiver is not an employee, the pay is still income to report on Form 1040 or 1040-SR, even if no self-employment tax is owed.
- Ask whether the caregiver runs a care business with multiple clients. If so, self-employment tax applies, and the full payment goes on Schedule C and Schedule SE.
This article summarizes IRS Tax Tip 2026-70. The IRS says the outcome depends on the facts and circumstances, so review each client's situation and see Publication 926 for household employer details.
Informational only, based on the IRS source linked above; not tax or legal advice for a specific situation.