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 a few exceptions, and one tax break. 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 our US clients pay their household staff, drawing on how Morgan & Mallet places and manages staff for clients in New York, Los Angeles, Miami, and Palm Beach.
Key insights
- Personal, living and family expenses aren’t deductible, and IRS regulations name domestic service as one of them (26 CFR 1.262-1). If the employee’s work mainly benefits you and your family personally, the cost is personal, whoever pays them.
- There are three narrow exceptions. Staff on a genuinely commercial property, the time a personal assistant spends on real business tasks, and staff employed by a real family office.
- Childcare can also qualify for the Child and Dependent Care Credit or a Dependent Care FSA, but those are personal tax breaks, not business deductions.
- 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 ⟪Household Staff Salaries⟫ Annual Report, nannies go from $60,000 to $120,000+ and estate managers $150,000 to $250,000+. Federal payroll taxes put about 7.7% on top.
- Most of our clients in the US employ their staff directly. Some use our payroll service, where Morgan & Mallet becomes the employer of record and sends one invoice a month that covers salary, tax, and insurance.
- Payroll service saves admin, but it doesn’t turn household pay into a business expense.
Figures checked on 15 October 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.
Once you pay your nanny or housekeeper $3,000 or more in 2026, you owe Social Security and Medicare tax, federal unemployment tax (FUTA) once you pay $1,000 in a quarter, and in most states, state unemployment tax, all reported on Schedule H.
Publication 926 is clear. You can’t deduct household employees’ wages and employment taxes on your Schedule C.
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 courts have treated childcare as a personal expense for a long time, even when both parents work (Smith v. Commissioner, 1939).
In 2006, an S corporation’s payments for the owner’s children’s daycare were disallowed too (Settimo v. Commissioner, T.C. Memo. 2006-261).
The same rule applies to housekeepers, private chefs cooking for your family, butlers, and chauffeurs driving your kids to school.
Personal assistants are slightly different. Publication 926 says private-secretary work isn’t household work, even when it’s done in your home. But a personal assistant whose main job is your personal calendar is still a personal cost.
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. Client meals can be 50% deductible, entertainment isn’t (IRS Publication 463).
- 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.
If you use the second home yourself for more than 14 days a year, or more than 10% of the days it’s rented, whichever is more, the IRS treats it as your home and limits the deduction (IRS Publication 527).
Some families do employ staff through a company.
A search we did for a private chef for a client in Pasadena in 2023 said the chef would be “a W-2 employee through the client’s company”, cooking family dinners six nights a week.
W-2 payroll keeps the chef’s tax and Social Security record in order. Whether the company can deduct the cost is another question, and for family dinners the answer is usually no.
The rule for this all is that personal, living and family expenses aren’t deductible (26 USC 262). 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.
In fact, if you rent out a home that you also live in for fewer than 15 days a year, the IRS says you don’t report the rent and can’t deduct any rental costs (IRS Publication 527).
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.
For pay, the IRS test is that it’s ordinary and necessary, reasonable, and for services actually performed (IRS Publication 334). Publication 587 covers the home office space itself, not your assistant’s pay.
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.
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, 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. The rate is 20% to 50% from 2026, depending on income (26 USC 21).
- A Dependent Care FSA through your employer. Up to $7,500 a year from 2026 ($3,750 if married filing separately) in pre-tax contributions for care expenses (IRS Publication 15-B).
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 $7,500 FSA cap covers a fraction of that. But the IRS allows it.
You are not able to count the same dollars twice. Money paid through the FSA reduces the expenses you can use for the credit.
To claim the credit, you also give your nanny’s name, address and taxpayer identification number on your return (26 USC 21).
If you own a business, there are two legitimate routes. Your business can set up a dependent care assistance program for its staff, and as a sole proprietor or partner you count as one of them.
The limit is the same $7,500.
The plan can’t favor owners. No more than 25% of what it pays can go to people who own more than 5% of the business (26 USC 129). IRS Publication 15-B lists sole proprietors and partners as eligible.
If you own an S corporation, ask your CPA whether you can join the plan.
Outside a plan like this, a company paying for your nanny is giving you a benefit, and fringe benefits are taxable unless the law excludes them (IRS Publication 15-B).
What happens if I wrongly claim household staff as a business expense?
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, the nanny’s wages might never have been reported as household wages.
She could then be short of Social Security credits and get a lower benefit (Social Security Administration). 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, our co-founder, gives families simple advice:
“I think it’s very important to follow the rules anyway. Don’t try to save a small money, because you will get a lot of trouble later… It is going to be more expensive as well.”
It also affects our guarantee, as Laurine explains:
“We don’t do any replacement if the client didn’t do the declaration: if you didn’t tell the government, ‘Okay, I’ve got this employee,’ [and you are] paying cash, for instance.”
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. Most of our clients in the US employ their staff directly.
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.
When the family is the employer, Morgan is clear about where our role as an agency ends:
“If you employ [her], she’s your employee. If you have any issue with her, I can advise you, to explain what you should do, but after, I can’t be involved, because I’m not the employer; I’m only the recruiter.”
With payroll service, Morgan & Mallet takes on the employer role. We employ the candidate. The client gets one invoice a month that covers everything.
Laurine describes how it works:
“The candidate will be employed by the company, Morgan & Mallet, and we will do a follow-up every month with the candidate and with the client[s]. And we invoice the client once a month for the services.
“[The client] doesn’t need to manage anything; we manage everything: the payroll, the payslip, the holidays, sickness, management in general.”
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.
You pay a month ahead, as Morgan explains:
“If you are my client and you would like to hire a butler, [you pay] first of all for the month, and after, I’m going to pay the butler the next month.”
Laurine on why clients choose it, and what it costs:
“He doesn’t want to manage the payslip, the monthly payslip. He would like just to be invoiced, and not to take care of this.
“So either it’s because it’s very boring and it’s time-wasting, or it’s just because he doesn’t feel able enough to manage it.
“It will cost them more, the payroll, to pay Morgan & Mallet’s service monthly than employing the staff themselves… It will be not much more, but it will be more expensive, the payroll, for the client than a simple recruitment.”
Our office in the United States opened in May 2024, and our first payroll request from the US came about two months later, from the New York lawyer in the example below.
Payroll in the US is newer for us than our French or UK payroll.
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.
Payroll also works across borders for families from the US. Morgan:
“We sign[ed] with an American client, based between Miami and Singapore, and he asked us to employ 28 people in Courchevel, in France, and he did that for three years.”
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 to $120,000+
- Housekeeper: $90,000 to $160,000+
- Personal Assistant: $80,000 to $250,000+
- Estate Manager: $150,000 to $250,000+
- Traveling Nanny: $70,000 to $150,000+
These are gross annual salaries.
On top, a household employer pays 7.65% Social Security and Medicare (Social Security stops at $184,500 of wages in 2026) and usually $42 a year in federal unemployment tax per employee, more in a “credit reduction” state (IRS Publication 926).
That’s about 7.7% of a $60,000 or $100,000 salary, and 7.2% of $200,000, before state unemployment tax. Add health insurance, workers’ compensation where it’s required, and any benefits you’re offering.
Benefits are common in the jobs we recruit for. In our 267 job ads in the US since 2022, 33.0% mentioned a benefits package, 13.5% paid time off and 13.1% health cover (how we count).
In New York and California specifically, domestic worker bills of rights have overtime and rest rules, and New York includes three paid days of rest a year. Our live-in staff guide compares six states.
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.”
For tax, IRS Publication 926 says that when an agency provides the worker and controls what work is done and how, the worker isn’t your employee (IRS Publication 926). Ask your CPA how that applies to your household.
Insurance covers the physical risks like damage to the client’s property, and injury to the employee on the job, as Laurine explains: “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.
The staff member also finds it easier to raise problems with us than with the family. Laurine:
“They trust the company much more than the client, because we interview the candidate, we are in touch with him, we ask for his documents; we have a real relation[ship] with the candidate.
“With the client, even if the client is nice, they are not close.
“So he’s a bit shy; he doesn’t dare to ask any question about his payslip, about his schedules, while [with] us, Morgan & Mallet, [he] can call us straight.”
This is what clients are buying when they pay for payroll. Cleaner admin, and less legal risk. It doesn’t make household pay a business expense.
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.
Does using a payroll service or employer of record make household staff tax-deductible?
No. You’re still paying for personal services, so the cost stays personal. What you get is less admin and less legal risk, not a tax break.
Get in touch
Morgan & Mallet 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.
Sources: IRS Publications 926, 15-B, 334, 463 and 527; 26 USC 21, 129 and 262; 26 CFR 1.262-1; Social Security Administration; Smith v. Commissioner, 40 B.T.A. 1038 (1939); Settimo v. Commissioner, T.C.
Memo. 2006-261 (all checked 15 October 2026); our Annual Report and our US job ads, 2022 to 2026.
