If care is provided in your home, the person is your household employee and you must issue them a W-2 if you pay them more than $2200 in the year. However, if they are your parent, you do not have to withhold Social Security tax or pay household employee’s tax.
If care is provided in their home, then you have no special tax reporting and you are free to pay them cash. However, the IRS puts the burden of compliance for the DCFSA rules on the employer and their plan administrator. So the plan administrator may ask for receipts or the caregiver’s tax ID number or other proof. Then, correct reporting of the self-employment income by the caregiver is their responsibility.
