Can someone deduct the cost of a caregiver?
My mother has a personal caregiver, who works for her full time in her home. She pays the cost of about $4,000 per month out of her own income. Can she deduct the cost as a medical expense on her income tax?
Yes, assuming that they are "qualified long term care services." To satisfy the IRS, you have to verify, primarily by a carefully written letter from her personal physician, that a) she is chronically ill, b) the services are provided in accordance with the physician's plan of care, and c) she required care and supervision to protect her from threats to her health and safety due, for example, to her diminished capacity. Her CPA will rely on Section 213 of the Internal Revenue Code in determining whether or not your mother's care qualifies.
Note: Physicians don't think about tax deductions when they care for their patients. Its OK to tell them about this opportunity and about the need for an appropriate letter or written plan.
Also, these expenses can only be itemized deductions if they exceed 7.5% of her adjusted gross income.
Remember to issue 1099s for each of the caregivers and submit to the IRS at year end.
To expand on Marie's answer, when someone works for only you and has no other clients, you can be held responsible for their Federal withholding, Social Security etc. A 1099 form is for "contractor" status and not employee status. It doesn't say here if this care worker has an employer, if not then YOU are and must withhold and submit all taxes from their pay checks, paying to the proper agencies. Call your tax advisor for further information on this. You also need to state on your end of year tax forms that you have paid help exceeding a certain dollar amount. It asks that question on your basic tax forms and will ask for their name and SS#. Since she has no other clients she can't claim she falls under "contractor" status and if the care worker says she pays her own taxes separately to the IRS on her own, don't believe it. I know someone who got stuck in this trap and owed many thousands in back taxes for a home care worker. To be clear, if someone works for just you, you're responsible for withholding their taxes, if they work for many other people, (many being the operative word here) they can be considered "contractors" and THEY are responsible for paying their own taxes. As long as you file a 1099 form with the I.R.S. at the end of the year stating the salary you paid them, you won't be held liable if the worker fails pay tax. You will need their social security number to submit, either way. If the care worker resists this, I would advise to release them from employment. I am assuming everything is on the up and up in this situation, but most people don't understand the tax issues that can get them in trouble when hiring care workers, house cleaners etc.
The worker appears to be a W-2 employee whether it is for valid medical justification or otherwise. I would strongly recommend a visit to www.irs.gov and a bit of research on Schedule H and the explicit instructions for same.
Use of 1099-MISC poses far too many expensive risks to the employer to use...risk management is necessary in the described circumstances, and only a moron would ask for trouble with IRS.
You should use a W-9 form and treat the caregiver as an independent contractor.
The wages paid to a caregiver generally need a W-2 form from the employer, unless their annual wages are only a few hundred dollars per year. To clarify, withholding taxes are paid from the caregiver's hourly wages...for example, the caregiver receives $25/hour...from that $25/hour, the employer withholds the income taxes from the Employer's tax table. The employer uses the tax tables to compute the caregiver's income tax for each paycheck. The only additional amount owed is approximately 15% the employer pays for their portion of the caregiver's social security and medicare tax. The employee pays approximately 1/2 of their own social security and medicare. Since I am a professional caregiver with many years experience and a highly responsible job history, I accept jobs where my client withholds my taxes for me and pays them to the IRS and the state on my behalf. I work at least 40 hours/week. I work long hours, take extra good care of their loved ones, and am very proactive in insuring that all of the family's needs are met. Doing my payroll shows respect for the service I give to my clients/families. There are payroll services that can set up the taxes and send out the W-2 form at year end. Or the employer/client do the payroll, write the checks, and prepare the W-2 form.
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