Caregiver agreement or personal care contract

[oceanlovin'ea]

This is a fairly new idea for an elderly person to pay a family member to provide personal services for them such as fixing meals, running errands, taking to doctor's appointments, etc.
This caregiver agreement can be part of a strategy for accelerating Medicaid eligibility for an elderly person. The payments can reduce the assets, which accelerates eligibility. Since the payments are in exchange for services rendered, they are treated as income to the caregiver.

Would these payments be wages or self-employment income? The article below says wages and another article I found in the Naples News said it could be either depending on how the contract is written.

Do you know of IRS codes or references to this kind of income?

I found an article on the web at www.haganlaw.net/Affording Long Term Care/caregiver_agreement.htm. -

But I was hoping to give the person asking for this information something from IRS, if it is available.

Thanks for your help.

Linda

[Lion]

Household Employee

The situation you describe sounds like a household employee that the employer would issue a W-2 and use a Schedule H on her own personal tax return. You'll have to check with her state for state filing requirements re withholding, unemployment, etc. Now if the relative already performs those duties as a living for multiple clients, then perhaps she is self-employed; but that wasn't what you described. States as well as the federal government are cracking down on mis-categorized workers, so start with Form SS-8 and read up on employee vs. independent contractor.

[S T]

Household

Linda,
I have a couple of clients that I have done this with in California.

Example - Daughter taking care of Mother with Advanced Parkinsons. (My client's daughter happens to be a licensed nursing practitioner)
I treat as a household employee - we issue paychecks, pay the FUTA,FICA, Mcare through the form 1040 and cover the payments with 1040 ES payments.

You would have to check with your State - in California - we remit quarterly the SUI and the PIT and file the appropriate annual Wage reporting.

For Federal/SSA - at the end of the year we issue a W-2 form to the daughter.

On the mother's tax return - the W-2 wages and payroll costs are deducted as medical expenses - on the daughter's return - she claims the W-2 income.

I also had this experience with another "licensed" nurse practioner that was not a family member to the Taxpayer.

Both of these were due to extended nursing issues for the taxpayer.

Not sure if their were no "nursing issues" involved?

Sandy

[Burke]

I believe the tax treatment would be exactly the same regarding wages, payroll taxes, etc. Whether or not they would be deductible as medical expenses by the recipient or person claiming the recipient as a dependent would depend on the definition of the care given. See TTB 4-7 for Nursing Services - Nonprofessional, and the definition of "Chronically ill" under Long-Term Care. Also see Dependent Care rules for a dependent living with the taxpayer.