Most families reach this decision the same way. Someone at church knows a wonderful caregiver who “does private work,” the hourly rate is noticeably lower than the agency quote sitting on the kitchen counter, and it feels like the easy call. Then someone asks who handles taxes, what happens when she gets the flu, and whether the homeowner’s policy covers a back injury on the stairs. Suddenly the easy call needs a little more thought.
Both paths can work well. A trusted private caregiver can be a blessing, and a good agency takes a lot of weight off a family’s shoulders. This guide compares the two side by side: what each really costs, how screening and backup coverage work, where the liability sits, and what the IRS and the Department of Labor expect when a family becomes an employer.
Two Ways to Hire In-Home Help
- Home care agency: The agency recruits, screens, trains, and employs the caregiver. The family pays the agency, and the agency handles payroll, taxes, insurance, scheduling, and replacements.
- Private caregiver (independent caregiver): The family finds and hires the caregiver directly, usually through word of mouth, referrals, or online listings. The family pays the caregiver and, in most cases, takes on the role of employer.
That last point is the one families most often miss. According to the IRS’s Household Employer’s Tax Guide (Publication 926), when an agency provides the worker and controls what work is done and how, the worker isn’t the family’s employee. When the family controls the work, the caregiver generally is.
What Each Option Really Costs
A private caregiver’s hourly rate is almost always lower than an agency’s. That gap is real, but it isn’t the whole picture, because an agency’s rate includes costs a family takes on directly when hiring privately.
What an Agency Rate Covers
- The caregiver’s wages, plus employer payroll taxes.
- Workers’ compensation and liability insurance.
- Recruiting, background screening, and training.
- Supervision and care plan oversight.
- Scheduling, plus a replacement caregiver when the regular one is sick or on vacation.
For context on wages, the Bureau of Labor Statistics reports that home health and personal care aides earned a median of $17.21 an hour in May 2025. Agency rates are higher than caregiver pay because they include everything in the list above.
What Private Hiring Adds
- Your share of Social Security and Medicare taxes (7.65% of cash wages, once you reach the IRS threshold).
- Federal unemployment tax, and in most states, state unemployment tax.
- Workers’ compensation coverage, which some states require for household employees.
- Overtime pay for hours over 40 in a week in many situations (more on that below).
- The cost of backup care when your caregiver can’t come.
- Your own time spent on payroll, records, and scheduling, or the cost of a payroll service to handle it.
An Illustrative Example
Here’s a simple example, not a quote. Say a family pays a private caregiver $20 an hour for 30 hours a week. Over a year, that’s about $31,200 in wages. The family’s share of Social Security and Medicare would add about $2,390, and federal unemployment tax adds a smaller amount on top. State unemployment tax and any workers’ compensation premium vary by state. Even with those added costs, private hiring often comes out cheaper per hour than an agency, but the gap is usually narrower than the two hourly rates suggest.
Taxes When You Hire a Caregiver Directly
Household employer taxes are the part of private hiring that catches the most families off guard. Paying a caregiver in cash or calling them a contractor doesn’t, by itself, change who the IRS considers the employer. For 2026, IRS Publication 926 lays out these thresholds:
- Social Security and Medicare: If you pay one household employee $3,000 or more in cash wages in 2026, these taxes apply. The total is 15.3%, split evenly between you and the employee.
- Federal unemployment tax (FUTA): This applies if you pay total cash wages of $1,000 or more to household employees in any calendar quarter.
- Federal income tax withholding: This isn’t required. It’s withheld only if the employee asks and you agree.
- Paperwork: Household employers generally need an employer identification number (EIN), file Schedule H with their federal tax return, and give the employee a Form W-2.
There’s an important exception: wages paid to your spouse, your child under 21, or your parent are generally not subject to Social Security, Medicare, or federal unemployment taxes, with some exceptions for parents. Wages paid to other relatives, like a grandchild over 21 or a niece, usually are. The IRS’s guide to employment taxes for household employees has a shorter overview, and a qualified tax professional can help with your specific situation.
Household employers who regularly employ a caregiver are also generally expected to complete Form I-9 to verify the caregiver is authorized to work in the U.S. Workers provided by an agency are covered by the agency’s own paperwork.
Wage and Hour Rules for Family Employers
Federal wage rules for in-home caregivers depend on what the caregiver actually does. The U.S. Department of Labor’s fact sheet on companionship services explains the key distinction:
- A caregiver who mainly provides companionship (conversation, activities, accompanying someone on errands, and watching over their safety) may be exempt from federal minimum wage and overtime when hired directly by a family.
- That exemption is lost for any workweek when hands-on care, like bathing, dressing, meal preparation, or medication help, takes up more than 20% of the caregiver’s hours.
- It’s also lost in any week the caregiver performs medically related tasks, such as catheter care, turning and repositioning, or tube feeding.
- When the exemption doesn’t apply, the caregiver is generally owed at least minimum wage for all hours worked and time and a half for hours over 40 in a week.
In practice, many private caregivers do a fair amount of hands-on care, so overtime questions come up more often than many families expect, especially during long weeks. Many states also set higher minimum wages and their own overtime rules for domestic workers. Federal rules for agency-employed caregivers have been under review since 2025, which is another reason to confirm current requirements with your state labor department.
Screening and Background Checks
Agencies typically screen caregivers before placing them, which commonly includes background checks, reference checks, and confirming any required training or certifications. Requirements vary by state, so it’s worth asking each agency exactly what its screening includes.
When hiring privately, screening is the family’s job. Steps families often take include:
- Checking several references, ideally including families the caregiver has worked for.
- Verifying any certifications the caregiver mentions, such as a CNA (certified nursing assistant) license, through your state’s registry.
- Running a background check through a reputable screening company.
- Holding a paid trial shift before committing to a long-term schedule.
If you use a background screening company, federal law sets out specific steps. The Federal Trade Commission’s guidance on using background reports explains that employers generally give written notice, get the applicant’s written permission, and follow a notice process before making a decision based on the report. Some states add their own rules.
Backup Coverage: The Question That Matters Most
Caregivers get sick, have family emergencies, and take vacations. With an agency, finding a substitute is the agency’s job, and most can send someone on short notice. With a private caregiver, the family usually covers the gap, whether that means an adult child taking time off work, a second private caregiver on call, or an agency used as backup.
For a loved one who can’t safely be alone, backup coverage isn’t a nice-to-have. Families hiring privately often line up their plan B before the first day of work.
Liability and Insurance
When an agency employs the caregiver, the agency generally carries the workers’ compensation and liability coverage. When a family hires directly, an on-the-job injury, like a caregiver hurting their back during a transfer, can become the family’s responsibility.
- Some states require household employers to carry workers’ compensation coverage.
- A standard homeowner’s or renter’s policy may not cover a household employee’s injury.
- Theft, property damage, and disputes over pay are also easier to resolve when a business stands behind the caregiver.
Families considering a private hire may want to talk with their insurance agent before the caregiver starts, and an elder law attorney can help with a written work agreement covering duties, pay, schedule, and time off.
Side-by-Side Comparison
A Home Care Agency Often Fits When
- Care needs are changing quickly, such as after a hospital stay.
- The family can’t easily cover gaps when a caregiver is out.
- Nobody in the family wants to handle payroll, taxes, or insurance.
- Several caregivers are needed to cover long days, nights, or seven-day schedules.
A Private Caregiver Often Fits When
- The family already knows and trusts a specific caregiver.
- Hours are steady and predictable.
- Someone in the family is comfortable acting as an employer, or is willing to use a payroll service.
- There’s a realistic backup plan in place.
Some families combine the two, with a private caregiver on regular weekday hours and an agency for nights, weekends, or backup. If an agency is part of the plan, our list of 10 questions to ask before hiring a home care agency can help with interviews, and our comparison of franchise vs. local home care agencies explains how those two types of agencies differ.
When Medicaid Pays for a Caregiver
Some state Medicaid programs offer self-directed care, which lets participants hire their own caregivers, sometimes including family members, while a financial management service handles payroll and taxes. Rules vary by state, and our state-by-state guide to Medicaid long-term care waivers explains how these programs work. Our guide on how to pay for in-home care covers other options, including VA benefits and long-term care insurance.
Finding the Right Help
There’s no single right answer here. An agency trades a higher hourly rate for convenience, screening, and peace of mind, while a private caregiver can cost less and feel more personal but puts the family in the employer’s seat. Knowing the real costs and responsibilities up front makes it much easier to choose with confidence. Whether you’re looking for personal care assistance, companion care, or a mix of both, you can find in-home care providers near you in the Senioridy directory and compare a few agencies before you decide.
This article is for informational purposes only and does not constitute legal, financial, or tax advice. Tax thresholds, wage rules, and program requirements are subject to change and vary by state, so always confirm current requirements with the IRS, your state labor and tax agencies, or official program representatives. If Medicare is part of your loved one’s care, keep in mind that Medicare Advantage plans may offer in-home support benefits that differ from Original Medicare; for free, personalized Medicare guidance, contact your State Health Insurance Assistance Program (SHIP) counselor. For questions specific to your situation, consult a qualified tax professional, an elder law attorney, or a licensed insurance professional.