Personal Finance

My Mother-In-Law is moving in with us. Can I pay her as an “employee"?

Aaron Webber

Published: January 19, 2025 8:30 am

Does it make sense to pay family as employees instead of simply giving them money if you want to support them? Are there any specific laws that prevent someone from paying family a salary? What tax or financial benefits come with paying family a regular wage? These are some interesting questions that usually come from the wealthy who look for loopholes in our current financial system. If you’ve wondered about these, you’re not alone.

One person online was wondering whether their plan to pay their mother-in-law a regular wage for living in their home and cleaning and childcare was feasible and legal. They took their concerns to the people in the r/financialindependence subreddit community in Reddit. Here is what they said.

The Question

The author of the post says they are 30 years old and want to achieve their own financial independence in around 10–15 years. Alone with his wife, he has agreed to take in his mother-in-law when she is older. She has no income and no financial assets.

He came up with a plan of hiring her as a contractor for cleaning and babysitting, since she will be living rent-free, and this way he doesn’t have to worry about employee taxes. He wants to pay her the federal minimum wage which will help her qualify for Social Security. After ten years of work, she will qualify for a low Social Security payment and Medicare at retirement.

This would cost them between $5 and $6 thousand every year, but he figures this is the best way to prepare for the high cost of medical care and other expenses when she gets older.

The author wanted to know if there were any big downsides to doing this. He calculates that this will delay their financial independence by only one year, which he thinks is fair for peace of mind and caring for family.

The Community Response

Please remember that all the comments in the original thread, and all the information in this article, are opinions. You should not take any of them as legal advice, and you should always speak to a lawyer before playing games with U.S. tax law.

Many people were quick to point out that doing this is full of legal grey areas and could even be illegal. One mentioned that a law change might have made it illegal to pay nannies as 1099 contractors. Another pointed out that she’s not really an independent contractor, since the author would be the one providing the tools, supplies, and everything she needs. The most helpful responders said that the author should contact a CPA or a lawyer to figure out if there is any legal way to do this at all. If not, then it would be considered fraud.

Instead of trying to be cute with the U.S. government, one helpful commenter said it might be better to just claim her as a dependent (since she would be) on his taxes. That way he’d be able to pay for her Medicare premiums when she turns 65. Then, he could just give her any money she might need instead of paying her a wage.