Most of the time, the answer is no. The IRS treats your nanny, housekeeper, private chef, or butler as a household employee, not a business one. Running their wages through your company as a deductible business expense, when the work they do is watch your kids or clean your family home, is the kind of mistake the IRS notices.
There are some exceptions. A nanny whose work lets both parents earn income can qualify you for a Dependent Care FSA or the Child and Dependent Care Credit. Staff working on a genuinely commercial property owned by a company (a rental portfolio, a working farm, a company-held corporate apartment) can be a business expense for that portion of their work.
Family offices that are real businesses can employ household staff in limited circumstances. Everything else is personal.
This page covers what the IRS allows, what it doesn’t, and how most high-net-worth US clients pay their household staff, drawing on how Morgan & Mallet International places and manages staff for clients in New York, Los Angeles, Miami, and Palm Beach.
Key insights
- The IRS uses a “primarily benefits” test. If the employee’s work mainly benefits you and your family personally, the cost is personal, whoever pays them.
- There are four narrow exceptions. Staff on a genuinely commercial property, the time a personal assistant spends on real business tasks, staff employed by a real family office, and childcare costs that qualify for the Child and Dependent Care Credit or Dependent Care FSA.
- Getting it wrong is expensive. The IRS throws out the deduction, charges back taxes, and adds a 20% penalty under IRC §6662. If they think you did it on purpose, civil fraud penalties hit 75%.
- US household staff cost more than most people think. According to Morgan & Mallet’s 2025/26 Annual Report, nannies run $60,000 to $120,000+ and estate managers $150,000 to $250,000+. Employer payroll taxes add roughly 10–12% on top.
- Most of our US clients use payroll service. Morgan & Mallet becomes the employer of record and sends one invoice a month that covers salary, tax, and insurance.
Last updated: April 2026. This article is general information, not tax or legal advice. For any specific situation, speak to a CPA or tax attorney familiar with household employment.
Can I pay my nanny or housekeeper through my LLC?
In almost all cases, no. The IRS calls this a personal expense dressed as a business one, and the test isn’t whether you paid them from a business account. The test is what they do.
If your nanny looks after your children while you work, she’s your household employee under IRS Publication 926. You owe Schedule H, Social Security, Medicare, federal unemployment (FUTA), and in most states, state unemployment tax.
None of that goes away because you paid her through an LLC. If the IRS audits and finds the nanny was working in your private residence caring for your own family, the deduction is thrown out, back taxes are owed, and accuracy-related penalties (20% under IRC §6662) usually get added on top.
The same rule applies to housekeepers, private chefs cooking for your family, butlers, chauffeurs driving your kids to school, and personal assistants whose main job is managing your personal calendar.
The IRS doesn’t care how the money moved. It cares who the work was for.
What’s the difference between a household employee and a business employee?
A household employee works in or around a private home, doing work for the family that lives there. A business employee does work that’s part of a trade or business run for profit.
The line is usually obvious. A nanny caring for your two-year-old is household. A receptionist answering calls for your law firm is business. The cases where people get into trouble are the ones in between.
- A chef who cooks for your family at home, but occasionally caters your firm’s client dinners. Household, with rare exceptions. The IRS will usually treat the business dinners as entertainment and disallow that portion anyway.
- A personal assistant who handles both your business calendar and your family vacations. Must be split. The portion of time spent on business tasks can be a business expense, if you can document it. The rest is personal.
- A housekeeper covering your primary residence and a second home held for rental income. The rental portion is a business expense, reportable on Schedule E, if the rental activity is genuine and there’s reasonable commercial use to point to.
The portion covering your own residence is not. Morgan & Mallet recruiter Jonathan de Vanderbilt recently handled a New York lead where the family split the year between Manhattan and a Hamptons property, and this kind of apportionment question came up during the staffing conversation. It comes up a lot when families own more than one home.
The IRS uses the “primarily benefits” test. If the employee’s work primarily benefits you and your family personally, the cost is personal. You can’t get around that by having the paycheck come from a business bank account.
When can household staff legitimately be a business expense?
There are a few situations where the IRS allows part, or occasionally all, of a household staff member’s pay to go through a business. They’re narrower than most people assume. There’s also one parent-focused credit worth knowing about, which isn’t a business deduction but reduces the after-tax cost of childcare.
Staff working on a genuinely commercial property
If you own rental properties, a working ranch, a vineyard, a corporate apartment used for business travel, or any other property owned by a company for business use, staff whose work is tied to that property can be a business expense. A caretaker for a rental portfolio. A housekeeper cleaning between guests on a short-term rental.
The property has to be genuinely commercial. A second home that the family uses, with a cleaner who comes in between visits, doesn’t qualify just because it’s rented for two weeks a year.
Home-office apportionment for a personal assistant
If you run a business from a home office, and your personal assistant genuinely spends time on business tasks, a portion of their salary can be apportioned. IRS Publication 587 sets out the home office rules. The split has to be reasonable, and you need to be able to back it up. Keeping a time log is the cleanest way to do it.
If the PA’s work is 80% personal errands and 20% business admin, 20% of their cost can go through the business. Not all of it. Tax Court has sided with the IRS on this repeatedly, including in cases involving wealthy families.
Family office staff
If the family office is a real business (managing investments, trusts, philanthropy, reporting), the staff it employs can be paid through it. The office itself has to have genuine business substance.
“Usually it’s more individual,” says Laurine Mallet, co-founder of Morgan & Mallet International, when asked who uses payroll services. “A family office, they are employed by or they have been created by the individual in order to manage this. So it means the individual already paid a family office, or invested in a family office, in order to manage this.”
Once a family office exists and is doing real work, staffing through it is the easy part. The harder question is whether the office has enough substance to be treated as a business in the first place. That’s a question for a tax attorney, not a recruiter.
Care that qualifies for the Dependent Care Credit or Dependent Care FSA
This isn’t exactly a business deduction, but it’s the piece most parents miss. If both parents work and the nanny’s care allows you to work, you can claim:
- The Child and Dependent Care Credit. A partial tax credit on up to $3,000 of care expenses for one child or $6,000 for two or more.
- A Dependent Care FSA through your employer. Up to $5,000 per household in pre-tax contributions for care expenses.
These don’t cover the full cost of a New York or Los Angeles nanny. According to Morgan & Mallet’s 2025/26 Household Staff Salaries Annual Report, nannies in the US earn between $60,000 and $120,000+ per year. The $5,000 FSA cap covers a fraction of that. But the IRS allows it, and most families who qualify don’t take full advantage of it.
What happens if I wrongly claim household staff as a business expense?
The IRS catches this more often than people expect. Usually it happens when what a business reports as payroll doesn’t match what household employees should be paying in Social Security and Medicare. The numbers don’t line up, and the audit follows.
The costs go up fast. The IRS throws out the deduction. You owe back taxes on the original income. A 20% accuracy-related penalty under IRC §6662 is quite normal. If the IRS thinks you did it on purpose, civil fraud penalties could be 75%. If the lying was deliberate, criminal charges are possible.
Then there’s the household employment side. You owe unpaid Schedule H taxes, the employer’s share of Social Security, Medicare, and FUTA. Interest goes from the original due date. Depending on your state, add unemployment and state income tax withholding on top of that.
And there’s a third problem people miss, which is the employee’s payroll history. If you paid your nanny through a business LLC as if she were a contractor, she has no W-2 and no Social Security record for those years, and she can’t claim unemployment or a pension. When she later tries to claim benefits and spots the gap, the complaint goes back to the IRS, which then has your name.
Morgan Richez, Morgan & Mallet co-founder, has seen the pattern in other jurisdictions too: “Sometimes they say, okay, we are going to employ officially 80% of your contract. We pay officially, but 20% we give you some cash.” It saves money now and creates trouble later, for both sides.
Once you add the penalties and the attorney fees to fight an audit, it almost never comes out in the client’s favor.
How do most Morgan & Mallet clients pay their household staff?
Two ways: direct employment with payroll support, or full payroll service where Morgan & Mallet acts as the employer of record.
With direct employment, the client is the employer. They run Schedule H, file W-2s, handle withholding, and deal with the rest of the admin. Most clients do this with a CPA or a specialist household payroll firm.
With payroll service, Morgan & Mallet takes on the employer role. We employ the candidate. The client gets one invoice a month that covers everything.
“We tell clients what the invoice will be at the beginning of the contract, and it doesn’t change,” Laurine says. “If the pension cost in January is higher than February, it doesn’t matter. We still invoice the same. It won’t change for the client.”
The monthly invoice covers the candidate’s gross salary, federal and state payroll taxes, medical insurance, background check fees, and liability insurance for in-home accidents. Morgan & Mallet’s margin is folded in too. One number, every month.
Why clients choose it:
“Actually, they are not enough informed about the administrative and law in the country,” Laurine says. “It’s very complicated. You need to call the medical insurance, to call a doctor to make sure the candidate is fit to take his job. It’s a lot of administrative responsibilities. So the client is like, okay, I don’t want to manage this. It’s too complicated.”
The other big reason: clarity on pay. Eric Rios, Morgan & Mallet’s US recruiter, meets candidates across New York, Chicago, and Dallas. He sees more disputes come from unclear pay terms than from personality clashes. Writing down the salary, overtime rules, PTO accrual, and bonus triggers upfront heads off most of the problems that later turn into IRS correspondence. A payroll service puts all of that in writing from day one.
Morgan & Mallet opened US payroll in May 2024. It’s newer than the French or UK side of the business. The first US payroll client was the New York lawyer in the example below.
Here’s how it worked. The lawyer, a mother of a two-year-old, needed a traveling nanny for a summer in Europe. She didn’t want to become an employer in the UK or France for six weeks of travel. Morgan & Mallet wrote the nanny’s contract through the UK office with travel days built in for France and Dublin. The invoice went from Morgan & Mallet’s US entity straight to the client’s US account.
“She doesn’t care where we make the contract,” Laurine recalls. “She said, ‘Okay, thirty days in the UK, ten days in France, five days in Dublin.’ I said, ‘Fine, I can make the contract with the candidate from the UK, and inside the employment contract, I will include that the nanny needs to travel ten days in France, five days in Dublin.'”
The client paid one US-dollar invoice a month. That was the whole arrangement on her side. That setup isn’t available for long-term domestic staff in your Manhattan apartment. For that, you’re looking at direct employment or US payroll service. But it shows why full-service payroll exists.
Single placements can turn into long relationships. Morgan Richez describes what happens, “When it comes to ultra net worth, this is the way how they use. They test you with one first recruitment, and after they can give you more and more. The trust and the confidence is the most important for them.”
Most of those first-time US clients find Morgan & Mallet through Google and ChatGPT. “That’s why it’s very important to have a very beautiful website, good design, good content,” Morgan says. Getting the first placement right, including the payroll side, is what earns the second, third, and fourth.
What do household staff cost in the US?
From Morgan & Mallet’s 2025/26 Household Staff Salaries Annual Report, for US-based roles:
- Nanny: $60,000 – $120,000+
- Housekeeper: $90,000 – $160,000+
- Personal Assistant: $80,000 – $250,000+
- Estate Manager: $150,000 – $250,000+
- Traveling Nanny: $70,000 – $150,000+
These are gross annual salaries. On top of that, a US household employer pays roughly 10–12% in combined employer payroll taxes (7.65% FICA plus 0.6–6% FUTA and SUTA depending on the state). Add health insurance, workers’ compensation where it’s required, and any benefits you’re offering. In New York and California specifically, domestic worker bills of rights add paid time off, overtime, and rest-day requirements.
For payroll service clients, Morgan & Mallet folds all of that into the monthly invoice. For directly employed clients, it sits on top of the headline salary.
How does Morgan & Mallet handle legal risk on payroll clients?
When Morgan & Mallet is the employer of record, the employment risk stays with us, not the client.
“With payroll, the clients don’t deal at all with legal issues,” Laurine says. “They don’t deal at all because they are not the employer. It’s Morgan & Mallet who is the employer, who has the responsibility of the staff. It means if something is wrong with the candidate, it’s Morgan & Mallet’s responsibility.”
Insurance covers the physical risks: damage to the client’s property, and injury to the employee on the job. “We’ve got an insurance if, for example, the candidate is breaking something, like a vase or a table. Another kind of insurance if, for example, the staff is falling on the stairs. If they try to climb on a chair in order to clean a window and they fall down, we’ve got a specific insurance to cover this cost.”
If there’s a dispute, theft for example, the process is clear: the client provides proof, Morgan & Mallet handles the termination, and the insurance covers damages. The client doesn’t sit across a table from an unhappy ex-employee.
This is what clients are buying when they pay for payroll. Cleaner admin, and one less door open to the IRS.
Frequently asked questions
Is a nanny a tax-deductible business expense?
No, unless she’s genuinely working on a business task that primarily benefits your trade or business. Childcare is a personal expense. You can offset some childcare costs through the Child and Dependent Care Credit or a Dependent Care FSA, but that’s separate from a business deduction.
Can I pay a personal assistant through my S-Corp?
Only the portion of their time spent on genuine business tasks. Personal errands, family admin, and household management have to be paid personally. The IRS wants a reasonable apportionment, and it needs to be documented. Paying the PA’s full salary through the S-Corp when half their work is personal won’t survive an audit.
What about a chauffeur driving me to client meetings?
Mileage and time spent on business travel can be a business expense. Commuting isn’t deductible, and neither is driving your kids to school. Keep a log.
Can a family office pay for a nanny?
If the family office is a real business (managing investments, trusts, real estate), and the nanny’s role is genuinely connected to that business, possibly. But a nanny caring for your children is almost never part of what the office actually does. This is where tax attorneys earn their fees.
Does routing payment through a business change anything if the work is personal?
No. The IRS looks at the nature of the work, not the path of the money. Payment from a business account for personal services is still a personal expense.
Get in touch
Morgan & Mallet International places household staff across New York, Los Angeles, Miami, and the entire US. We offer payroll service as well as direct recruitment. If you’re working out how to set up pay for your household, or your tax advisor has flagged a payroll question, call the US office on +1(646)965-2308.
