Tax implications for care giving payments

[KarenF135883]

We have set up a personal care program for me to recieve payments from my mother, who lives with my husband and myself in our home.  Our lawyer told us that we would need to report that as income on our tax return.  However, he did not say anything about my mother having to pay employment taxes on the money she pays me.  After reading the AARP article regarding paid care giving, I am concerned that we need to investigate this matter.  I do have financial and health care POA for my mother.  Can you advise?

[GailL1]

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@KarenF135883 wrote:

We have set up a personal care program for me to recieve payments from my mother, who lives with my husband and myself in our home.  Our lawyer told us that we would need to report that as income on our tax return.  However, he did not say anything about my mother having to pay employment taxes on the money she pays me.  After reading the AARP article regarding paid care giving, I am concerned that we need to investigate this matter.  I do have financial and health care POA for my mother.  Can you advise?

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If your mother is going to pay you out of her finances to be her caregiver, then the arrangement has to be documented fully and the relationship determined.  Either you are a household employee (employee) or you are an independent contractor (self-employed). 

The answer is defined by the IRS based on your situation and how the relationship has been established and what the personal care agreement has been set up.  It kind of sounds like your lawyer may have set it up where you pay your own taxes and your own self-employment taxes (SE taxes)

IRS - Publication 926 (2019) - Household Employer's Tax Guide

You do need to understand this matter fully because there could be unintended consequences if your mom ever has to go on Medicaid or if there are other heirs in your family.  Doing it right, helps you and your mom and everybody else from any problems or misunderstanding.

Can't give you any other options or give you a definitive answer since your specific details are most important -   but there are many ways that it can be structured DEPENDING ON THE SITUATION.  NOTHAPPENING mentioned another alternative but that might not work in all situations.

This AARP article describes some of the details and differences in how things are set up and for what reason.

AARP 10/04/2016 - Can I Get Paid to Be a Caregiver for a Family Member?

You may to take your personal care agreement to an accountant or CPA and understand exactly what your responsibilites are in this matter mainly by determining if you are an employee or a self-employed person. 

With your mother living with you - this brings in other matters like is part of the money you are receiving to cover room and board, which would be rent or boarding to the IRS.

It can be set up properly and it maybe now but you need to understand how it has been set up so that everything is properly executed for the taxman.

[NOTHAPPENING]

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@KarenF135883 wrote:

We have set up a personal care program for me to recieve payments from my mother, who lives with my husband and myself in our home.  Our lawyer told us that we would need to report that as income on our tax return.  However, he did not say anything about my mother having to pay employment taxes on the money she pays me.  After reading the AARP article regarding paid care giving, I am concerned that we need to investigate this matter.  I do have financial and health care POA for my mother.  Can you advise?

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Your mother could "gift" up to $15,000 each to you and your husband each year with no taxes due.  You could do this if you gave care to your mother without payment.  I would suggest the checks be marked as gift so the total "gift" would be a maximum of $30,000 per year!

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-tax...