Not necessarily on the federal side, but you would also need to check with your state taxing authority. Parents are listed as exceptions to counting wages for social security and medicare and unemployment tax withholding. Here is the applicable IRS Publication. See table 1 and then scroll down to the parent exception paragraphs.
Yes they can live with you and be employed by you. Also, you do not count as wages, lodging provided to your employee at your home for your convenience and as a condition of employment.
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