FAQ: Are There Benefits for My Parents if They Pay Me for the Time I Spend Caring for Them?

A fellow caregiver asked...

Are there benefits for my parents if they pay me for the time I spend caring for them?

Expert Answer

Joel Gottsacker is a geriatric care manager and certified case manager in southern Michigan and the owner of GeriatRx, which provides comprehensive social work and nursing support as well as geriatric case management.

Yes, there are many benefits for your parents if they pay you for the time you spend caregiving. But for your parents to get the maximum benefit, you need to report the income and pay taxes on it. Even though this is a hassle, there are many good reasons for your parents to pay you and for you to report that income to the government.

To do this, follow the rules for operating as an independent contractor. Keep track of your hours and invoice your parents every week or two weeks. The invoice can be simple, but it needs to record an hourly rate, the number of hours, and your Social Security number. Your parents should pay you by check and keep the canceled checks or checking account statements. Every three months, you'll pay quarterly income tax on that money.

This may sound silly, but by doing this you allow your parents to have a legal record of where their money is going. This could prove important in the future if your parents move into some kind of long-term care facility or qualify for other Medicaid services. State policy allows a "look-back" over the previous five years. If your parents have been paying you without tracking that money payment for a service, then it's considered a gift. It might look like your family has been gifting money to get around the asset rules. If they haven't been paying you and all their money's just sitting in the bank, then it's considered an asset. When they need long-term care, it will all end up going to the nursing home anyway. Wouldn't it be better to have it go to you for the work you've been doing?

Also, if you're a mother who's already taken time out of the workforce to have children, your livelihood and future financial security are going to be impacted if you're not reporting income because you're not paying into the Social Security system. This could have a serious adverse impact on your future, a situation I see all the time. If you don't get paid or you get paid in cash and don't report the income, it looks like you've been unemployed for all those years. Also, when you're ready to go back into the workforce, if you've been working for "Mom, Inc." for seven years as an independent contractor, that's something you can discuss proudly with potential employers.