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Why Household Employment Deserves a Formal Approach

Hiring a nanny, housekeeper, caregiver, driver, private nurse, chef, or other household worker can feel informal because the work happens in a private home. But in many cases, the family or individual doing the hiring is an employer for legal and tax purposes,[i] and the requirements vary by state. That means payroll, tax reporting, work authorization, wage-and-hour rules, insurance, and recordkeeping should be handled with the same care that would apply in a more traditional workplace. A thoughtful process at the outset can reduce risk, avoid surprises, and help create a clear and professional relationship with the people who help the household run smoothly.

1. Start With the Threshold Question: Is the Worker Your Employee?

The most important initial question is whether the worker is truly a household employee. This classification matters because it determines who is responsible for payroll taxes, employment records, insurance, and compliance with federal and state employment laws. In general, a worker is an employee if the household controls both what work is done and how that work is done.

By contrast, a self-employed worker generally controls how the work is performed, supplies their own tools and equipment, offers services to the public, and operates an independent business. A worker supplied by an agency may also fall outside the household employee category if the agency controls the work and is the employer of record. Labels are not controlling: calling someone an “independent contractor” does not make it so if the household directs the details of the job.

2. Before the First Day: Authorization, Screening, and Expectations

Work authorization. Household employers generally must verify that an employee is authorized to work in the United States.[ii] Form I-9 should be completed for a regular domestic worker, with the employee completing their portion and presenting acceptable identity and work-authorization documents. The completed form should be securely stored and treated as a confidential employment record. However, individuals employed for casual domestic work in a private home on a sporadic, irregular or intermittent basis are exempt from the Form I-9 requirement.[iii]

Background checks and references. Household employment often involves access to children, elderly family members, private information, homes, vehicles, money, valuables, and daily routines. For that reason, references, prior employment history, and appropriate background checks are generally recommended. Employers should approach screening consistently, lawfully, and with attention to applicable consent and privacy rules.

Written expectations. A written employment agreement or offer letter is one of the simplest ways to prevent misunderstandings. It should address the employee’s duties, schedule, compensation, overtime expectations, paid time off, confidentiality, use of household vehicles or credit cards, reimbursement procedures, benefits, termination expectations, and any house-specific rules. The goal is not to make the relationship impersonal; it is to make it clear and understandable.

Employer identification number. A household employer that must report employment taxes generally needs an Employer Identification Number, or EIN.[iv] The EIN is used for tax filings, wage reporting, and other payroll-related obligations. Families that already employ workers through another business should be careful not to assume that an existing business EIN is automatically the right number for household payroll.

3. Should the Household Hire Directly or Through an LLC?

Direct hiring. Many households hire directly, especially when employing one or two workers. Direct hiring can be simple and appropriate, but it does not eliminate the household employer’s payroll, tax, insurance, wage-and-hour, and recordkeeping obligations. The risk is that the relationship may feel too informal, leading to missed filings, undocumented arrangements, or inconsistent treatment of wages and benefits.

Hiring through an LLC. For larger households, family offices, or situations involving multiple employees, a limited liability company may provide a useful administrative structure. It can centralize payroll, accounting, employment records, insurance policies, and contracts. An LLC may also help reinforce that the employment arrangement should be treated formally rather than casually.

That said, an LLC is not a magic shield. Limited liability protection depends on proper formation, adequate capitalization, separation of personal and company funds, accurate records, appropriate insurance, and compliance with employment laws. If personal and LLC funds are commingled, if the entity is ignored in practice, or if required formalities are not observed, the liability protection may be weakened. The entity decision should therefore be made alongside payroll, insurance, tax, and employment-law advice.

4. Understand the Federal Tax Rules

Federal income tax withholding. Household employers generally are not required to withhold federal income tax from a household employee’s wages unless the employee asks for withholding and the employer agrees.[v] If withholding is agreed upon, the employee should provide a Form W-4, and the employer should handle the withholding through payroll records.

Social Security and Medicare taxes. For 2026, Social Security and Medicare taxes generally apply when a household employer pays a household worker $3,000 or more in cash wages during the year. The employer and employee each owe Social Security tax and Medicare tax at the applicable rates, with Social Security wages subject to the annual wage base and Medicare wages generally not subject to a wage base cap. The employer is responsible for remitting both the employer share and the employee share, whether the employee share is withheld from wages or paid by the employer on the employee’s behalf.

Federal unemployment tax. Under the Federal Unemployment Tax Act (FUTA), if a household employer pays $1,000 or more in total cash wages to all household employees combined in any calendar quarter of the current or preceding calendar year, the employer owes FUTA tax on the first $7,000 of cash wages paid to each employee during the year. FUTA tax is paid entirely by the employer and is not withheld from the employee’s wages.

5. Do Not Overlook State and Local Law

Federal tax rules are only part of the picture. State and local laws may impose additional obligations, and those rules can vary significantly depending on where the household, employee, and work are located, including meaningful differences among states. The following are common areas to review before the employee starts work:

State income tax withholding. Whether a household employer must withhold state income tax depends on the state. Some states impose no personal income tax and therefore have no withholding obligation at all. Many others that do impose an income tax treat withholding for household employees as elective, mirroring the federal approach, so that withholding applies only if the employee requests it and the employer agrees. Other states require registration or withholding once certain wage or filing thresholds are met, and remittance schedules and reporting forms vary by jurisdiction. Household employers should confirm their state’s specific withholding, registration, and remittance rules before the employee begins work.

State unemployment insurance. Most states have unemployment insurance rules that may apply to household employers, though the thresholds, registration requirements, tax rates, and filing procedures vary by jurisdiction, and household employers should confirm the applicable rate and wage base with their state’s labor or revenue agency.

Workers’ compensation insurance. Some states require household employers to carry workers’ compensation insurance once certain wage or employee thresholds are met, while others impose no such mandate. Even where coverage is not mandatory, insurance should be reviewed carefully because household employees may work in settings where injuries can occur.

Paid leave, sick leave, and notice requirements. State and local paid leave laws, sick leave laws, wage notices, paystub requirements, and recordkeeping rules may apply, and coverage for household employers varies significantly. These rules often include technical requirements that are easy to miss if the household is not using a payroll provider or employment-law checklist.

Domestic worker protections. Several states and localities provide enhanced protections for domestic workers, including rules related to overtime, rest periods, discrimination, written notices, and termination practices. A household employer should confirm whether any domestic worker bill of rights or similar law applies in its state.

A Practical Compliance Checklist

• Decide whether the worker is an employee or independent contractor based on who controls how the work is done, not labels.
• Complete and retain Form I-9 when required.
• Use a written agreement or offer letter that clearly describes duties, pay, schedule, benefits, confidentiality, and termination expectations.
• Obtain the proper EIN and set up payroll before wages are paid.
• Track wages, hours, overtime, reimbursements, paid leave, and tax withholdings carefully.
• Review federal, state, and local tax and employment-law obligations.
• Confirm appropriate insurance coverage, including workers’ compensation, employment practices coverage, automobile coverage, and umbrella liability coverage where appropriate.

Takeaway

Household employment carries the same tax, insurance, and employment-law consequences as any other employment relationship, regardless of where the work takes place. Treating it casually creates real exposure: misclassification, unpaid payroll taxes, and gaps in insurance coverage can lead to penalties, back taxes, and disputes with the very people families rely on. That exposure is avoidable. Before the first day of work, confirm the worker’s status, put the terms in writing, secure the correct tax accounts, and put the appropriate insurance in place. Families who take these steps early, ideally with the guidance of qualified advisors, convert household employment from a source of legal and financial risk into a stable, well-documented relationship.

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[i] Internal Revenue Service, Publication 926, Household Employer’s Tax Guide (for use in 2026), https://www.irs.gov/pub/irs-pdf/p926.pdf.

[ii] U.S. Citizenship and Immigration Services, Handbook for Employers M-274, § 2.0, “Who Must Complete Form I-9,” https://www.uscis.gov/i-9-central/form-i-9-resources/handbook-for-employers-m-274/20-who-must-complete-form-i-9.

[iii] U.S. Citizenship and Immigration Services, I-9 Central, “Exceptions,” https://www.uscis.gov/i-9-central/completing-form-i-9/exceptions.

[iv] Internal Revenue Service, About Form SS-4, Application for Employer Identification Number, https://www.irs.gov/forms-pubs/about-form-ss-4.

[v] Internal Revenue Service, Topic No. 756, Employment Taxes for Household Employees, https://www.irs.gov/taxtopics/tc756.