Household Employer

[JDW]

Aging parent lives with son and his wife in their home, parent receives Veteran Aid Assistance. Son's wife or daughter in law is the parent's Caregiver and receives fixed amount monthly of $1500 for normal care, transportation, room and board, etc. Appears the parent would be a household employer, even though it is not her home, and the daughter in law would receive a W-2. Can the daughter in law write off the Caregiver expenses as unreimbursed employee expenses (transportation, room and board) subject to 2% AGI?

Thank you for your help,

John

[MDEA]

Household Employer

I had the same thing with my mother in law but the money was deposited into her bank account and she paid it out. No paper work was ever received from VA. I do not thingk they will issue a W-2.

[JDW]

I had the same thing with my mother in law but the money was deposited into her bank account and she paid it out. No paper work was ever received from VA. I do not thingk they will issue a W-2.

I'm wondering if the parent that received the VA money and paid it out to the caregiver (relative) should be a household employer and issue a w-2 to the caregiver? And the parent lives in the caregivers residence.

[Rapid Robert]

I'm wondering if the parent that received the VA money and paid it out to the caregiver (relative) should be a household employer and issue a w-2 to the caregiver? And the parent lives in the caregivers residence.

If I understand you, the fact that parent gets income from VA is completely irrelevant to the question.

Living at caregiver's residence is also irrelevant to "household employee", which is a term applied to anyone employed for domestic work, for example a chauffeur or yard worker who never sets foot inside the house could still be a household employee.

You mention room and board, and other expenses such as transportation. This setup strikes me more as an expense sharing arrangement with a "roommate", not a household employee. Does parent live in a separate dwelling unit? Even if a portion of the money is for service provided rather than sharing upkeep of a household, seems like it could easily fit within the annual gift limit for avoiding any tax reporting at all. I'd say, no income or deductions for caregiver here, based on limited info we have.

[Burke]

$1,500 per month would be $18,000 per year. Well within the gift allowance of $14K per person for the parent. I assume parent receives the funds from VA and then gives to son & DIL for her living expenses.
I don't see any income/W-2 here. (Not sure where you are coming from on the write-off by DIL for employee bus expenses even if she were to claim it as income.)

[JDW]

$1,500 per month would be $18,000 per year. Well within the gift allowance of $14K per person for the parent. I assume parent receives the funds from VA and then gives to son & DIL for her living expenses.
I don't see any income/W-2 here. (Not sure where you are coming from on the write-off by DIL for employee bus expenses even if she were to claim it as income.)

Thank you Rapid Robert and Burke for your reply. Please find additional information as follows; the aging parent has a bedroom in the main residence and access to other parts of the house. I considered treating as a gift but the parent receives monies from the VA Veterans Aid and Assistance program. A requirement to receive is a signed agreement with the caregiver (daughter in law) and documentation of care provided with weekly invoicing of the services provided. Otherwords they want evidence the monies were paid out for care. And the services provided should be within the "scope of personal care and maintenance of the disabled persons immediate environment". It appears the parent should either be a household employer and issue a W-2 to the caregiver or daughter in law or not as an employee and the daughter in law reports income as other income.

[Burke]

If you research this, there are different answers including treating as a gift, employee and W-2, 1099, etc. -- all over the place. I would go with this site, https://www.irs.gov/businesses/small...employment-tax. It refers you to Pub 526, Household Employees, but don't bother. It is of no particular help, since this is in the caregiver's home, and the DIL is not an employee since the parent has no control over how she performs the care. The parent treats the payments to the DIL as compensation on a 1099MISC (Other Income, Box 3) with no self-employment tax or withholding required since she is not in the business of providing eldercare. DIL reports on Line 21, Other Income of the DIL's return. Only include amounts specified as medical care, not transportation, room & board, groceries, incidental personal expenses, etc. Reporting this as income by the DIL should avoid Medicaid treating as a gift, and it would not be subject to their claw-back rules should it be necessary for the parent to qualify at a later date. Also this amount could be deducted by the parent on the parent's tax return if he/she qualified to itemize medical expenses. The VA will not issue a W-2 regardless of their invoicing requirement for the benefit. If the parent wants to give the DIL the amount of income tax this may cause her to pay, I don't have a problem with treating that as a gift at all.

[Rapid Robert]

It is of no particular help, since this is in the caregiver's home, and the DIL is not an employee since the parent has no control over how she performs the care. The parent treats the payments to the DIL as compensation on a 1099MISC (Other Income, Box 3) with no self-employment tax or withholding required since she is not in the business of providing eldercare.

Where in this thread was there any evidence provided that the parent has no control over how the work is done? The location where the services were provided is irrelevant for this purpose. Further, the parent would not have to issue a 1099-MISC since the payments were not made in the course of a trade or business of the PARENT.

From the additional information provided, it seems this is less a tax issue and more an issue of satisfying the requirements to get the government aid, one of which is that it be used for professional caregiving to the recipient, not reimbursing (or gifting) a relative for living expenses.

Of course the VA won't issue a W-2, as they didn't hire anyone. But they only gave the money on the condition that it did get used to pay someone to provide certain services. In this light, I advise best course of action is to indeed issue a W-2 to the DIL, to satisfy the condition of getting the money from VA.