LTC payments

[Art]

Client’s elderly mother who still resides in her home has a chronic illness which requires 24-hr care year- round. She has a qualified LTC contract and received a 1009-LTC for $ 54,092 in 2011. The client and his sister are the appointed guardians for the mother and manage her financials affairs. The children have several individual caregivers (not related) who provide the care. The children fill out the paper work for the monthly claims to the insurance provider. The LTC checks are made payable to the mother; they do not go directly to the caregivers. The children then write checks to the caregivers from the mother’s checking account to pay them for their services. The total amount paid out to the caregivers was $ 68,024 in 2011. This arrangement has been on-going since 2009. The insurance coverage will run out in April 2012.

Question: Are the caregivers considered employees of the children (or the mother) and would the payments to them be considered taxable wages? Are the children (or the mother) liable for FICA tax and Fed/State W/H? No 1099s or W-2s have been issued for any years.

The children say no based on the following statement from the insurance company:

”Your long-term care insurance contract provides only for reimbursement of qualified long-term care expenses. All benefits paid to reimburse you for such expenses are non-taxable, whether paid to you or to a care provider on your behalf”

I am very concerned about the situation both for me as preparer and for the mother and children. I was under the impression that the mother was receiving care in an assisted living facility. I was unaware of the arrangement as outlined above until he dropped off the tax information for himself and his mother last night.

Art

[Burke]

When they say "they are non-taxable" they mean to the policyholder. If those funds are then used to provide in-home care to persons (not an agency) then, yes the caregivers would be subject to employment taxes and should be issued W-2's.

[Art]

Burke,

Thanks for the reply. Looks like this will be an after tax season project since this has been going on since 2009. Don't have time to get this done now.

[Burke]

I feel for you. There are all sorts of issues, including workmen's comp. But that means the workers can't file their 2011 taxes either until they get the forms to do so. I wonder how they have been handling it in the past with no reporting of any kind. Note that the difference between the LTC payments and the actual amount paid out to caregivers, should be a deductible medical expense for the mother, although she may not need it.

[Art]

At this point I doubt that the caregivers have reported anything per subsequent discussion with the children. I have asked the children to put together a summary for each caregiver for each year and get a vaild SSN, address, ect. They told me that 2 of the caregivers for the earlier years have passed away so we have another problem there.

I have never had a situation like this where no W-2s were filed and you have to go back several years to get the payroll reports filed. I assume that the caregivers would be considered household employees so I could file Schedule H on the mother's return for this year ? and then file amended returns for 2009 and 2010 ?

It is a very sad situation for the children (who are trying to do the right thing by the mother whom they promised would not have to go to a nursing home because the children vowed to give her in home care) and for the mother who is feeling the stress of all of this. When the insurance runs out in a few months they are going to provide as much care for her as they can handle themselves and try to get by as best they can. Both of the children have low paying jobs. All they need is this mess on their hands. Feel just awful, but I will do what I can for them.

Art

[taxdude71]

Why would they be considered W-2 employees? Most of the in home care givers I've done returns for (other than emplyeed through a servivce) work in multiple homes through out the year. They are almost always 1099'd.