Paying a caretaker in cash with conditions - is it legal?

Mel47 asked...

I am the adult caregiver for my elderly mother and father for the last 3 years. They live in and rent a house that belongs to my husband and I. My father is 83, has had multiple falls and broken bones and is somewhat mobile with the assistance of a roller walker. He was also diagnosed with dementia close to a year ago, is on Exelon patches, and has sundowner's syndrome really bad. My mother is 72 and her health is not good due to a benign pituitary brain tumor she had at the age of 48. She has not driven a car since that age, and the tumor is growing again. She is on medication to help control the growth and so far, it is working. My father hasn't driven in about 2 years. Thirteen months ago, I enlisted the help of Veteran's Legal Assistance Network to help me with the process of filing for VA Medical Care Assistance and to move his liquid assets to annuity-type insurance policies. I could foresee that in spite of my father's declining health...my mom was not comfortable with the thought of him going to assisted living without her, but she does not want to go with him as well. He began receiving 1,908.00 per month from VA to go toward in-home care. About 4 months before this, my parents completed a Will and named me Financial POA. I have paid their bills and taken care of their financial matters for the last 3 years now. This is where I get to the heart of my story and hope that someone can help me with the dilemma I am in... In July, I was exhausted from running back and forth to my parents house and trying to keep my parents fed, my father bathed, and all of the other things that go along with caretaking. I finally convinced my parents that hiring someone to come to their home a few hours a week would offer mom and I a little relief. A friend of mine called and told me that the caretaker that had cared for her father-in-law for 5 years was looking for another job because her father-in-law had passed away. I knew that if my friend had been happy with the caretaker, then she must be really good. My friend also shared with me that they had always paid the caretaker cash because the caretaker suffers from diabetes and cannot afford the $1,200 in meds she needs for her diabetes. If they would have paid her by check, she would have lost her benefits. The caretaker has been really awesome with my parents and she works 45 hours per week...and my parents like her a lot. This is worth a lot to me; however, the stress is still there because my father gets very agitated if I do not come by nearly every day...and often times forgets that I was actually there the day before.

Now that I have provided background information, here are my concerns and questions:

  1. In order for my father to receive VA benefits for in-home care, they have to pay out $3,300.00 per month for care. Keep in mind that out of that 3,300, VA send my dad a check for $1908 to apply toward that amount.

  2. VA doesn't care if a family member is paid to take care of the loved one, or a professional or even if he goes to an Assisted Living Center....just so long as there is $3,300 per month being billed out for care.

  3. Because the caretaker is paid in cash so that she will not lose her benefits, I had to figure out a way to bill the care. So, I opened a checking account in my name and my parents bank generates a check to me twice a month for $1650.00 to show that it is billed out. I then write a check for "cash" every friday from that account...we pay her $2,000.00 per month...thus she gets $500.00 per week. This leaves $1,300.00 per month left over out of the 3,300.00.

  4. My husband has me put back the whole $1300.00 per month into a savings account for self-employment taxes. This may seems like a big chunk, but my husband and I are in a 30-35% tax bracket which means we pay a higher amount of self-employment tax.

  5. Concern: I am having a hard time with the fact that my husband and I will be paying self-employment tax for 2009 on money that is going to the caretaker. Is this right? I know that someone has to pay taxes on what is billed out as care every month, thus this inevitably falls on our shoulders.

  6. Does anyone know if there is another way I can do this? Our high tax bracket causes us to have to pay more and my husband feels that we shouldn't be having to do this.

  7. The caretaker and I agreed on $2,000 per month, but she told me that she likes to be paid every friday. In the beginning I was thinking...okay, so I will pay her $500.00 every friday. But...I began to realize that this means on the months that have 5 fridays....she gets an extra $500.00 per month. Once again...is this right? She insists on being paid every friday. Of course, I feel a little stupid right now for not realizing in the beginning that there are those 5 Friday months.

Any advice on my dilemmas is appreciated. I do know now that my paying her cash is not really an honest thing....however, we are not defrauding the gov't, because I am paying the taxes instead of her. I have tried to explain this to my parents, but they do not understand. They would be very upset if I thought of finding someone else that I could pay via check, thus taking the tax situation out of my life.

Do any of you do this as well? Is this a normal thing? I know that my friend's father-in-law didn't have the VA benefit dilemma and the money just didn't get reported by either party...which definitely isn't right.

I still pay my parents bills for them, buy their groceries for them, take care of meds, etc. It's really strange because I thought if someone took care of them 40 hours per week, that things would be less stressful...however, I think it is more stressful at times because of the financial part and my parents get very upset if I do not come over nearly every day or if I go anywhere with my husband...out of town on a business meeting, etc.

I apologize if I have rambled and if I sound like I feel sorry for myself. I just do not know what to do and/or if this is a common thing.

Any advice is appreciated!

Mel47

Expert Answer

Steve Weisman hosts the nationally syndicated radio show A Touch of Grey, heard on more than 50 stations, including WABC in New York City and KRLA in Los Angeles. He is a practicing lawyer specializing in estate planning and is admitted to practice before the United States Supreme Court. He's a public speaker and commentator who has appeared on many radio and television shows throughout the country, and he's the legal editor of Talkers magazine, the preeminent trade publication of talk radio. His latest book is The Truth About Avoiding Scams.

Your question is quite long, but the answer is quite simple. You are not complying with the law if you make these payments in cash without the proper deductions and reporting. This person is an employee and you have certain requirements in regard to tax reporting, tax withholding and workers compensation insurance with which you are not in compliance. I know this is not the answer you want to hear, but the risk of not complying with the law could be significant.