What are the legal risks of paying a caregiver in cash?

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Paying a caregiver in cash without proper reporting exposes your household to significant liability for unpaid payroll taxes, workers' compensation claims, and personal injury lawsuits, violating federal and state employment laws.

Federal Payroll Obligations: If you pay a household employee more than $3,000 in a year, the IRS classifies you as an employer. You must withhold Social Security and Medicare taxes (collecting half) and pay your matching half. Additionally, if cash payments total at least $1,000, you must deposit Federal Unemployment Tax Act (FUTA) and pay applicable State Unemployment Tax. Failure to do so results in penalties and interest, often exceeding the original tax amount.

• Workers' Compensation: While the specific threshold varies by state, many require household employers to carry workers' comp insurance once employment crosses a certain wage level. If a caregiver is injured on the job and you lack this coverage, you may be personally liable for all medical bills and lost wages.
• Liability Exposure: Uninsured accidents, such as a caregiver tripping over furniture or suffering a stroke during a shift, can lead to severe civil lawsuits against you personally.
• Record-Keeping: The IRS and Department of Labor expect formal payroll records. Paying cash does not exempt you from maintaining logs of hours worked and wages paid.
• Professional Guidance: Consult the IRS Employer's Publication 1112 specifically for household employees, or seek advice from a local employment law attorney to understand your state's specific requirements.

Compliance is not optional; it protects both you and the caregiver by establishing a clear, lawful working relationship.

admin · 2026-10-02 12:34:10