How do I best handle being paid as a caregiver for my grandparents with regard to Medicaid lookback and taxes?
Because of what I have learned from this site I have set up a written agreement with my grandparents for their care. It states what I will do in return for a monthly dollar amount. The main reason is to avoid a challenge in Michigan regarding the spend down for medicaid when one of them goes into a nursing home. This is bound to happen soon. I really don't care to receive the income nor do I need it. It will probably sit in an account in case they need something in the future. They would rather a family member received it vs a nursing home facility. My questions are: 1. When they look back will they put a limit on the monthly income? We are using $2,000 a month. 2. What are the taxable ramifications? Do I declare it as normal wages?
When deciding someone's eligibility for nursing home care, Medicaid looks at large or regular payments the Medicaid applicant has made during the previous five years. The point of this is to prevent people from giving away or hiding assets in order to qualify for Medicaid. If the applicant has spent money for any legitimate purpose at fair market value -- as opposed to giving the money away, or paying exorbitant amounts for the goods or services received -- then Medicaid does not count that money as part of the applicant's assets. Under these rules, paying a family member to provide care at home is certainly a legitimate expense if the care is actually provided and the amount paid for the care is reasonable.
There is no dollar limit on how much your grandparents can legitimately pay you for such care. But the amount they pay has to be a reasonable amount for the type and amount of work you do. That reasonableness is measured by what it would cost to hire someone from outside the family to perform the same work in the area where you live. So, in deciding whether the $2,000 per month is a reasonable amount, Medicaid will look at the tasks you performed, how often you performed them, and what it would have cost to hire an independent home care aide to do the same work. If an independent home care aide where you live would charge $15 per hour for the kind of work you do for your grandparents, then you would need to put in 133 hours per month of work for them (133 x $15 = $2,000). That's a lot of hours per month, unless you're living with them. If the kind of work you do for them is more complicated than what most independent home care aides could do, or if home care aides charge more than $15 per hour in your area, then the number of hours you put in could be less. The same would be true if you had special training or skills that made your care "worth" more than that of an independent aide without such training or skills. Or, because it's worth it to your grandparents to have a grandchild rather than a stranger do the work, Medicaid might consider $20 an hour a fair wage, which would mean 100 hours per month. The fact that you have a written agreement with your grandparents is a good way to show Medicaid what your arrangement is, but the arrangement itself has to be reasonable in terms of what they pay you for the work you do.
As for the tax consequences of your arrangement, you'd have to check with a tax accountant to get that advice. But if you are being paid by your grandparents to do work for them, it certainly seems that such pay would be regular income (wages paid for work performed) which you would be obligated to report on your tax return and to pay taxes on. That would be true whether or not you spend the money or save it.
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