Disclosures: This post includes affiliate links. If you sign up through my link, I may earn a small commission at no extra cost to you. I only recommend tools I actually use and point clients toward. I’m a CPA, but I’m not your CPA. This post is educational, not personalized tax advice. Talk to your own accountant before you file anything. I’m also not an elder law attorney or financial advisor. If your family’s situation involves a will, trust, power of attorney, or anything legally binding, loop in a qualified professional in your state.
Mom’s doctor says she shouldn’t be home alone all day. So you start making calls, and by the end of the afternoon you’ve figured out you have two options. You can go through a home care agency, or hire someone yourself.
The price difference stands out right away, but you might not realize there’s a big difference in the paperwork required, too. That difference can cost your family more down the road if you’re not aware of it.
Here’s how a home care agency vs a private caregiver compares.
Agency care
When you hire through an agency, the agency employs the caregiver. You pay the agency an hourly rate, and the agency pays the caregiver, handles payroll taxes, provides insurance, and manages the schedule.
Agency care pros
- Someone else handles vetting. Agencies typically run background checks, check references, and provide training. Standards vary by agency and state, so confirm how they vet and train in-home caregivers.
- Backup is built in. If your parent’s caregiver gets sick or quits, the agency sends someone else.
- The agency is the employer. The agency handles payroll taxes, W-2s, and workers’ comp, so you don’t have to.
- You get some oversight. Many agencies assign a care manager or nurse to supervise caregivers and adjust the care plan.
Agency care cons
- It costs more. According to CareScout’s 2025 Cost of Care Survey, the national median monthly cost for non-medical in-home care is $6,673, assuming 44 hours of care per week. Meanwhile, the Bureau of Labor Statistics (BLS) reports the median pay for home health and personal care aides is $17.21 per hour, which works out to $3,029 per month, assuming 44 hours per week and 4 weeks per month. The difference between what families pay and what caregivers earn covers the agency’s payroll taxes, insurance, recruiting, scheduling, and profit.
- You get less say in who shows up. The agency makes the assignment, so your parent may see different faces week to week.
- Rotation is hard on some parents. A parent with dementia or memory loss usually does better with one familiar person.
- Some agencies set minimums. You may have to book a minimum number of hours per shift or per week, even if your parent only needs help for part of that time.
Private caregivers
With a private hire, you find, hire, and pay the caregiver directly. Families find private caregivers through word of mouth, churches, community groups, or online platforms.
Private hire pros
- Lower total cost. Without the agency markup, you may be able to pay the caregiver more than an agency would and still spend less per hour.
- You choose the person. You interview candidates and pick the one who fits your parent’s personality and needs.
- Consistency. Your parent builds a relationship with one caregiver instead of a rotating cast.
- Flexibility. You set the hours, duties, and schedule without working around agency policies.
Private hire cons
- You do the vetting. Background checks, reference calls, and verifying certifications all fall to you.
- There’s no automatic backup. When your caregiver gets sick or takes vacation, you need a plan B.
- You carry the liability. If a caregiver gets hurt in your parent’s home, your parent’s homeowners policy may or may not cover it. Some states require workers’ comp for household employees, so check your state’s rules.
- You become an employer. You need to handle payroll, payroll taxes, and send them a W-2 at year-end.
Understanding household employer rules
When you hire a caregiver privately, the IRS generally treats that caregiver as a household employee. That comes with payroll tax obligations, and many families don’t learn the requirements until it becomes a problem.
According to IRS Publication 926:
- You’re responsible for Social Security and Medicare taxes. Social Security and Medicare taxes apply to the wages of household workers you pay $3,000 or more per year in 2026. The employer and employee each owe 7.65%. You’re responsible for paying your employee’s share of the taxes, as well as your own. You can either withhold your employee’s share from their wages or pay it from your own funds.
- Federal unemployment tax (FUTA). This kicks in when you pay $1,000 or more in total cash wages to household employees in any calendar quarter.
- Federal income tax withholding. This part is optional. You’re not required to withhold federal income tax from wages you pay a household employee. Withhold federal income tax only if your household employee asks you to withhold it and you agree.
- Forms. You’ll need an employer identification number (EIN). You can get one for free online at IRS.gov. At year-end, you need to provide a W-2 for the caregiver and file Schedule H with your individual tax return, Form 1040.
Then there’s your state. Depending on where you live, you may also owe state unemployment tax, need to withhold state income tax, file a new hire report, or purchase workers’ comp coverage. State rules vary, so check yours before the first paycheck.
Take advantage of caregiver tax breaks
If your parent’s caregiver provides nursing-type care, part of what you pay may count as a medical expense. That includes the employer’s share of payroll taxes. According to IRS Publication 502, you can include Social Security, Medicare, FUTA, and state employment taxes you pay for someone who provides medical care. If the caregiver also cooks and cleans, you can only count the portion tied to medical care, so track how the caregiver spends their time.
How to make the private route manageable
The payroll piece stops many families from hiring privately, even when a private caregiver is the better fit for their parent. It doesn’t have to be the deciding factor.
Poppins Payroll is a household payroll service that handles the employer side for you. They work with families who employ in-home caregivers, and they can get your Federal Employer Identification Number (EIN), file your state’s new hire report, set up your tax accounts, and run payroll.
Currently, the service costs $49 per month for one employee. You tell Poppins what you’re paying. It handles the withholding, filings, and forms.
How to choose between home care agency vs private caregiver
An agency probably makes more sense if:
- Your parent’s care needs change often or require round-the-clock shifts
- You live far away and can’t cover gaps yourself
- You don’t want any employer responsibility
A private hire probably makes more sense if:
- Your parent needs steady, predictable hours
- Consistency with one caregiver matters, especially with memory loss
- Someone local can step in when the caregiver is out
- You’re willing to handle payroll or pay a service to do it
Some families use both a private caregiver for regular hours and an agency for fill-in shifts. That setup gets you consistency and a backup plan.
If you’re leaning toward a private hire, set up payroll before the first paycheck. Poppins Payroll gets you registered and handles the filings, so the paperwork doesn’t become the reason you don’t hire the right person.
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Frequently asked questions when choosing between home care agency care vs private caregiver
Can I pay an in-home caregiver as an independent contractor?
No. Calling your caregiver an independent contractor and sending a 1099 doesn’t change how the IRS classifies the relationship. If the caregiver works in your parent’s home and your family decides when they work and how the work gets done, that’s a household employee.
Who’s the employer, you or your parent?
Figure this out before you hire. When care happens in your parent’s home, and your parent’s money pays for it, your parent is typically the employer, and you handle the filings as their agent under a financial power of attorney. If you’re paying out of your own pocket, talk to a tax professional about how to set it up.
What about paying a family member?
Paying your sister to care for Mom doesn’t exempt you from the rules. The IRS makes exceptions for wages paid to a spouse, a parent, your child under age 21, and any employee under age 18. No exceptions apply to other family members. If your parent pays your sibling more than the threshold, those wages count.
Is it really an agency?
Some services that call themselves agencies are really registries or referral services. They match you with a caregiver and charge a fee, but they don’t employ the caregiver. That makes your family the employer. Before you sign a contract, ask who issues the caregiver’s W-2. If the answer is “you” or “we pay them on a 1099,” you’re the employer.
What happens if you ignore the household employee rules?
Your parent (or you) could owe back taxes, penalties, and interest. The caregiver loses Social Security credits they earned. And problems often surface at the worst time, like when the caregiver files for unemployment after your parent moves to assisted living and the state asks who their employer was.
