At Paid Care, we believe caregiving should come with the support and compensation it deserves. Still, many family caregivers find themselves paid in cash, off the books, and without access to the protections and resources they are legally entitled to. While this may seem like a convenient arrangement at first, the truth is that under-the-table payment puts both the caregiver and the care recipient at risk—legally, financially, and medically.

This in-depth guide explains what happens if a caregiver gets paid under the table. We’ll cover the legal risks, tax issues, consequences for both caregivers and employers, and how to transition to legal employment. You'll also learn how Paid Care helps caregivers get paid through Medicaid and other compliant programs—offering protection, structure, and peace of mind.

What Does It Mean to Get Paid Under the Table?

Being paid “under the table” means receiving income without proper reporting to tax authorities or compliance with payroll and employment laws. The arrangement usually involves cash or checks with no official tax withholding, W-2s, or tax return documentation.

For caregivers, this setup can seem informal—especially when caring for a family member. But by law, if you're providing ongoing care and receiving compensation, you’re a household employee. That designation brings responsibilities for both the person paying and the one being paid.

Why Do Families Pay Caregivers Off the Books?

Most under-the-table arrangements are not malicious—they stem from confusion, urgency, or convenience. Many families hiring a senior caregiver or nanny for elder care don’t realize that they become household employers under IRS guidelines. They may be unaware of their obligation to set up payroll, withhold income tax, and comply with Department of Labor rules.

Families often make one or more of the following assumptions:

They won’t get caught.
It's only temporary.
The payments are “gifts” or “help.”
Hiring a lawyer or accountant is too expensive.
It’s easier than formal employment.

These assumptions lead to real legal trouble later. The law is clear: if you pay someone regularly to provide nursing, care, or home support services, you are their employer.

Legal Risks for Caregivers Paid Under the Table

If you're a caregiver accepting off-the-books payment, the consequences can be serious—even if you didn't set up the arrangement.

1. No Employment Record or Benefits

When you’re not officially employed, you don’t qualify for employee benefits like unemployment, health insurance, or Medicare credits. You also don’t earn Social Security credits, which could lower your future retirement income or disqualify you entirely.

2. Tax Evasion and Back Taxes

Unreported income is still taxable. If the IRS discovers unfiled income tax, you may be required to pay back taxes, interest, and late penalties. The IRS can audit up to six years of prior returns. Repeated failures could be treated as fraud or tax evasion, which are criminal offenses.

3. No Protection for Workplace Injury or Termination

If you’re hurt on the job, there’s no insurance to cover medical expenses or lost wages. You also can’t file for unemployment benefits if your job ends. Because you weren’t officially an employee, you have no legal standing under wage or labor laws.

4. Problems with Credit and Housing

Most financial services require proof of income. If you’re paid in cash with no paycheck, you’ll struggle to qualify for mortgages, car loans, or rental housing. You also can’t demonstrate work history during a background check, which can affect future job opportunities.

Employer Risks of Paying Caregivers Under the Table

When a family pays a caregiver under the table, they are violating multiple laws. The IRS, Department of Labor, and state agencies all have rules that apply to household employment.

1. Legal and Financial Penalties

If caught, you may be liable for unpaid payroll taxes, back taxes, and penalties. Employers who avoid tax withholding can be audited, fined, or charged with tax fraud. These costs often exceed the amount that would have been owed through legal compliance.

2. No Tax Deductions

Without proper documentation, you cannot claim nanny tax deductions, medical expense deductions, or dependent care credits. The IRS will not allow deductions based on undocumented payments.

3. Liability for Injuries and Lawsuits

If the caregiver is injured while working, you may be sued for damages. Without workers’ compensation insurance, the financial burden could include medical bills, lost wages, and legal costs. If terminated unfairly, the caregiver may file a lawsuit, and courts will likely view you as an employer regardless of how informal the agreement was.

The Medicaid Factor: When Caregiving Affects Public Benefits

Medicaid is a need-based program with strict rules on income and asset eligibility. Under-the-table payment arrangements can create major problems for both caregiver and care recipient.

For Caregivers:

If you're applying for Medicaid, SNAP, or subsidized housing, unreported income can disqualify you. If it's discovered during a reporting update, you may be required to repay benefits and could be barred from future participation.

For Care Recipients:

If a senior receiving care is also receiving Medicaid or planning estate planning for nursing home eligibility, informal payments may be considered improper transfers. Medicaid can trigger a look-back period, leading to delays or denial of benefits.

Misclassification of Caregivers: A Common Mistake

Many families wrongly classify caregivers as independent contractors to avoid payroll obligations. This is not allowed. According to the IRS, caregivers under the family’s direction—working on a schedule and in their home—are household employees.

Misclassification can lead to audits and fines from the Department of Labor, along with repayment of missed wages and taxes. If the caregiver files for unemployment benefits, the claim may reveal the misclassification, triggering a full investigation.

How to Transition to Legal Caregiving Payments

If you’ve been paying or receiving under-the-table payment, the sooner you move to legal employment, the better. Begin by:

Creating a written agreement outlining duties, hours, and wages.
Registering as a household employer with the IRS and your state tax agency.
Setting up a payroll system with proper tax withholding.
Filing regular tax returns to document income and expenses.
Obtaining workers’ compensation insurance if required in your state.

This transition ensures compliance and gives both caregiver and employer access to protections, benefits, and peace of mind.

How Paid Care Helps You Get Paid Legally

At Paid Care, we take the complexity out of caregiving compensation. We help you determine if you're eligible for Medicaid-based programs that legally pay family caregivers for providing in-home support.

Once approved, we manage the administrative burden for you. You’ll receive official paychecks, with all appropriate taxes filed and reported. You’ll have access to a mobile app for management of your time, payments, and reports. We also assign you a dedicated care coach and provide real-time support.

Our services are ideal for caregivers providing daily nursing, personal care, or general elder care—whether you’re a child caring for a parent, a spouse, or part of a trusted network of caregivers. We eliminate legal risk while helping you get compensated for the important work you do.

What to Do If You've Already Been Paid Under the Table

If you're currently in an under-the-table arrangement, there are steps you can take:

Begin tracking hours and income going forward.
File amended tax returns for prior years to correct omissions.
Talk to the family or employer about legalizing your employment.
Reach out to Paid Care to start your eligibility check for Medicaid-funded pay.

It’s never too late to come into compliance and gain access to long-term security and support.

Final Thoughts

Caregiving is vital work. But being paid under the table as a caregiver exposes you to unnecessary legal, financial, and medical risk. It leaves you without protection, documentation, or future benefits—and it puts the family at equal risk for audits, penalties, and lawsuits.

Paid Care exists to solve this problem. We help caregivers get paid legally, access employee benefits, and receive fast, safe, trackable payment—all while staying fully compliant with tax, employment, and Medicaid rules.

If you're providing care for a loved one, don't gamble with your future. Start today with a free eligibility check at https://paid.care.com and take the first step toward secure, documented, and meaningful compensation.

FAQs

No, it is not legal to pay caregivers under the table. Paying cash without reporting it to the IRS violates tax laws and labor regulations. Both the employer and caregiver could face penalties if discovered.
The IRS requires that employers who pay caregivers over $2,700 per year (as of 2025) treat them as household employees. This includes issuing a W-2, withholding Social Security and Medicare taxes, and submitting employment taxes via Schedule H.
If an employer pays a caregiver under the table, they risk IRS audits, fines, and back taxes. They may also be liable for unpaid Social Security, Medicare, unemployment taxes, and interest.
Evidence may include lack of tax documents (no W-2 or pay stubs), cash-only payments, no records of hours worked, or informal agreements. Investigations can also rely on bank statements, witness testimony, or inconsistent income reporting.

What Happens If a Caregiver Gets Paid Under the Table?