Do You Need a Payroll Service for a Parent's Caregiver?

A caregiver payroll service can withhold, report and pay a household caregiver's taxes for your family, but your family stays responsible if the service fails to act.1 You don't have to use one. The real choice is between routes: doing the paperwork yourself, paying a service to do it, or, if Medicaid pays for self-directed care, using the payroll entity the program works through. Below is what each one changes, and two checks that help you catch a problem early if someone else is doing the work.

In This Guide

• Who Is the Employer When You Hire Mom's Caregiver?
• What a Caregiver Payroll Service Does for You
• What a Payroll Service Doesn't Change
• How to Check That Your Payroll Service Is Paying
• Your Four Options, Side by Side
• How an IRS-Approved Section 3504 Agent Is Different
• If Medicaid Pays for the Care
• Can You Do Caregiver Payroll Yourself?
• When You're Handling It Under a Power of Attorney
• Frequently Asked Questions
• Learn More

Who Is the Employer When You Hire Mom's Caregiver?

Before you shop for anyone to run payroll, get clear on whose payroll it is. Usually it's your parent's, not yours.

The IRS says caregivers who work in the homes of elderly or disabled people are typically employees of the people they care for, because they work in those homes and the person receiving care has the right to tell them what needs to be done.5

What decides it is control. Under IRS Publication 926 (2026), a worker is your household employee if you can control not only what work is done but how it's done, whether the job is full time or part time and even if you found the worker through an agency's list. If an agency provides the worker and controls what work is done and how, the worker isn't your employee.1

That last point is its own answer to the payroll question. Hire through a home care agency that provides the aide and controls the work, and the aide isn't your household employee under that test. Hire someone yourself and direct the work, and your parent (or whoever holds that control) is the household employer. For 2026, once the employer pays one household employee $3,000 or more in cash wages, the employer has to withhold and pay Social Security and Medicare taxes. Wages paid to some close relatives, such as the employer's spouse or a child under 21, don't count as Social Security and Medicare wages.1

Our guide to paying a caregiver as a W-2 employee walks through every employer step. This page is only about who does those steps.

What a Caregiver Payroll Service Does for You

A payroll service, or a reporting agent, is a company your family contracts with to withhold, report and pay over the caregiver's Social Security, Medicare, federal unemployment and income taxes on your behalf. That's the IRS's own description of the arrangement in Publication 926.1

That can be worth paying for. If you're already juggling a parent's appointments, medications and bills, handing off the withholding math and the deadlines can be a real relief.

Just be clear on what you're buying. You're paying someone to do the work. You aren't hiring a new employer.

What a Payroll Service Doesn't Change

Publication 926 and the Schedule H instructions both say that, as an employer, you're generally responsible for making sure tax returns are filed and deposits and payments are made, even when you contract with a third party to do them. Then they put it plainly: "You remain responsible if the third party fails to perform any required action."1

The IRS's guidance for employers who outsource payroll goes further. If the third party fails to make the federal tax payments, the IRS may assess penalties and interest on the employer's account, and "the employer is liable for all taxes, penalties and interest due." The household employer stays liable for those taxes, penalties and interest even if it already sent the tax money to the payroll service.1

How to Check That Your Payroll Service Is Paying

The IRS gives employers two specific protections in its outsourcing guidance.1

1. Keep your own address on file. The IRS sends letters about the account to the employer's address of record, and it "strongly suggests" employers don't change that address to the payroll provider's. If the IRS writes about a missed payment, you want that letter in your parent's mailbox, not the provider's.
2. Get your own EFTPS PIN. The IRS tells employers to register on the Electronic Federal Tax Payment System (EFTPS) to get their own PIN and use it to periodically verify payments. Checking now and then tells you whether the deposits are actually landing.

One more question to put to any service, in writing: which returns does it file in your name, and which does it expect you to file? Don't assume the answer about Schedule H, the form a household employer attaches to its own Form 1040 to report household employment taxes.1 Get the answer from the provider, and if it's unclear, check it with a tax professional before the filing deadline.

Your Four Options, Side by Side

The table draws on the IRS's payroll-service liability rules,1 its Section 3504 agent rules and CMS's description of the Medicaid employer agent,2 the Treasury joint-liability regulation,3 the Medicaid financial management rule,4 and Publication 926 on Schedule H.1

How an IRS-Approved Section 3504 Agent Is Different

A Section 3504 agent is a payroll agent the IRS itself has approved to act for an employer. The employer asks for this on Form 2678, Employer/Payer Appointment of Agent.2

Once approved, the agent works differently from an ordinary service.2

• It files one return for many employers. The agent files a single employment tax return each period covering every employer it acts for, puts its own name and EIN in the employer spaces, and attaches a schedule listing each employer by name and EIN.
• The caregiver's W-2 carries the agent's name. The agent generally files one Form W-2 per employee with its own EIN, and its name followed by "Agent for (name of employer)."
• You still need an EIN. Because the agent has to list each employer by EIN, the IRS requires every home care service recipient (someone whose home care is paid at least partly through a federal, state or local government program) to get one.2,3
• Schedule H may not be needed. The Schedule H instructions say: "If a government agency or third-party agent reports and pays the employment taxes on wages paid to your household employee on your behalf, you don't need to file Schedule H to report those taxes."

Liability is shared, not shifted. Under the Treasury regulation, your parent is still bound by every employer rule the agent is handling, penalties included. The IRS calls this joint and several liability: the agent and your parent are both on the hook for the taxes and penalties the agent takes on.3

For a person whose home care is paid through a federal, state or local government program, the IRS can also authorize the agent to handle federal unemployment (FUTA) tax, if the agent already holds the authority for Social Security, Medicare and income tax withholding.3

If Medicaid Pays for the Care

If your parent gets Medicaid home care through a self-directed program, the payroll side is typically already covered, so you usually aren't shopping for a service. When a participant self-directs, a financial management services (FMS) entity typically handles the administrative and payroll work so the participant doesn't have to. Depending on the state, it may be called a fiscal/employer agent, a fiscal intermediary or, in Texas, a financial management services agency.4

The federal rule for Medicaid's Section 1915(j) self-directed personal assistance option (42 CFR 441.484) spells out what that entity has to do, at a minimum: take in the workers' timesheets, run payroll, and withhold, file and pay the federal, state and local employment taxes that apply.4

Who the employer is depends on how your state runs the program. The Centers for Medicare & Medicaid Services (CMS) describes four models:6

• Government fiscal/employer agent: a state or local government human service agency acts as the agent, and your parent (or their representative) is the legal employer.
• Vendor fiscal/employer agent: a private vendor acts as the agent, and again your parent (or their representative) is the legal employer. In both fiscal/employer agent models, CMS describes the agent as the Section 3504 agent above.2
• Agency with choice: the agency is the "primary" employer and your parent or their representative is the "managing" employer.
• Public authority: your parent hires and manages the worker, and a third-party entity runs payroll processing.

That federal rule has two limits worth knowing. A state that doesn't use a financial management entity performs these functions itself, and a participant who takes the cash option performs them directly rather than having an entity do them.4

If you're the family member being paid, our guide to who sends your W-2 when Medicaid pays you explains what your tax form should look like under each model.

Can You Do Caregiver Payroll Yourself?

Yes. Here's the short version of what's involved; the full household-employer checklist has every step in order.

• Get an EIN. A household employer has to put its employer identification number on the forms it files for the caregiver, and an EIN isn't the same as a Social Security number. You can apply online at IRS.gov/EIN, or by fax or mail on Form SS-4.1
• File Schedule H with the employer's tax return. Household employment taxes go on Schedule H, attached to the employer's Form 1040 or 1040-SR (or 1040-SS, 1040-NR or 1041). If the employer has no income tax return to file, Treasury regulations provide for Schedule H as a separate return.1
• Pay as you go, not all in April. To avoid owing it all at once, the employer can have more withheld from their own pay (a new Form W-4) or pension (Form W-4P), or make estimated tax payments on Form 1040-ES. An employer who doesn't pay enough during the year may owe an underpayment penalty.1
• Give the caregiver a W-2 when it's required. For 2026, you must file a separate W-2 for each household employee paid $3,000 or more in Social Security and Medicare wages, or any wages you withheld federal income tax from.1 For wages paid in 2026, the caregiver's copies and the Social Security Administration's copy with Form W-3 are due by February 1, 2027.1
• Keep the records. Keep employment tax records for at least 4 years after the due date of the return or the date the taxes were paid, whichever is later.1

If that list feels manageable, you may not need a service at all. If it doesn't, a service can carry the load, as long as you keep the two checks above.

When You're Handling It Under a Power of Attorney

If you're running your parent's caregiver payroll under a power of attorney, your parent is still the employer, and the IRS limits when someone else can sign the parent's income tax return, which is where Schedule H rides.7

An agent may sign an individual's return only if the person can't because of disease or injury, has been continuously outside the U.S. for at least 60 days before the due date, or has asked the IRS in writing and been granted permission for good cause. The return then has to come with a power of attorney authorizing the agent, and a properly completed Form 2848 is enough. You can help prepare the return at any time.7

The EIN works the same way. Your parent applies on Form SS-4 as a household employer, and if the form needs a signature, your parent signs it. Your parent can name you as the third-party designee to receive the new number and answer questions about the form, and that authority ends once the EIN is assigned and released to you.7

Learn More

Find personalized help sorting out payroll for a parent's caregiver at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.