I am guardian of the property for my incapacitated mother. I am hiring caregivers to care for her in my home, and paying them with my mother's money. I want my mother to have the tax advantage of this medical expense.
Who is the employer, for tax purposes? i.e., whose EIN/Social Security do I use as the "employer"?
And viva la underground economy!!!
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
There are certain criteria to have someone who works for you as an Independent contractor. Our accountant advised us to have the people working for our Dad be employees.
Keywords there for me are "business owners". Individuals who are in such bad share so as to need a caregiver are not running a business. The sick person is not running a business. There is no "company" that controls the behavior of the caregiver; it is an agreement between two people - one who needs care and the other whose willing to give it for money. Also, the relationship will not continue beyond the life of the person needing care or that person moving into a facility.
And it's not illegal rather that your accountant has advised your father to make his caregiver an employee. Others should know they can choose differently and not fear breaking the law.
The following are clips found on Google.
"Caregiver expenses can be deductibleas medical expenses. That's where the confusion starts. ... And there's the medical expense deduction threshold. Medical expenses are deductible only to folks who itemize, and then only to the extent that the expenses exceed 7.5% of your adjusted gross income.
Dec 8, 2011
"The employer would not have to withhold taxes on the caregiver. However, the employer is required to file copies of the 1099-MISC with the Internal Revenue Service. ... If the caregiver is an independent contractor, the employer must file a Form 1099-MISC and be concerned with potential liability for a work-related injury."
You are paying for services rendered at a scaled pricing just like you would a housekeeper or lawn service.
As the guardian, you just need to keep records of all monies paid out from your Mother's money to report every year to the Court. All monies spent with Mom's must only be used for Mom, you have to account for that ESPECIALLY if you have siblings as you will need to prove to them that you didn't use her money for a dream vacation.
I will have a llc or s corp in place. Employe / contract people todo the services for mom through that company. Mom can’t control them. You as the employer will decide in consultation with mom the need for the services. It is a small price to pay to get organized but saves lot of HA.
I suggest the payroll company BeneftMall PayFocus. They are awesome. I have them do the paperwork for my small business. They bend over backwards to help.
The payroll company takes out taxes and files all the paperwork, which simplifies matters. Her payroll company was difficult to deal with.
Be careful be about over time if you have limited funds because it will eat up the savings.
Employees are more expensive than Independent Contractors, but it makes it all legal.
Hopefully you are already POA. No cash, all checks for everything, or debit card (for excellent record-keeping).
I went to an elder lawyer for advice. We ended up setting up a trust (I was already POA).
Everything is very simple and straight-forward now, and I don't have to concern myself with probate later on.
Each state is different, check in with an elder attorney.
All the best to you and mom!!
But this is something that you should ask a tax preparer, CPA or if you have a lawyer that knows Elder Law they would be the ones that would know the "in's and out's" of the insane IRS system.
MAT STRAZZ
If you do not have POA and *especially* if you have siblings you need to see an eldercare attorney and Petition the Court to establish you as one if your mom is incapable of making her own decisions. Do this now. I guarantee you your brothers and sisters will be your worst enemies when the estate runs dry due to her care and you WILL be accused of extorting her money. Your own family will stab you in the back because they have no clue how expensive it is to care for a totally incapacitated person. All they care about is getting a piece of the money pie like vultures. IF you are POA they will have no say.
Im assuming your are looking at a employer type deduction.
However, a good accountant can find all sorts of deductions to claim and hopefully get enough “medical” expenses added up to qualify for this deduction. As the medical deduction is based from a percentage of income - it sometimes can be a tough one to achieve.
I did experience some frustration with my mother being considered the employer rather than myself. I handled all the money, bills, contact and communication with the home care agency - but as far as the caregiver was concerned - mom was the boss. I guess... technically so.
Still - when my mother had her big fall - The Game Changer - as I call it, all sorts of issues came to light. Things that I feel I should have been told so I could have made arrangements for a higher level of care.
Which, I suspose was my mothers fear as she instructed the caregiver not to tell me about several specific instances- things that screamed “more care”. But there I was - thinking that with the caregivers help, mom was “managing”.
Yeah, right.
Sorry for the aside rant - residual frustrations!
I remember when my Dad had caregivers, his CPA was able to claim the amount for his care at home. But I had gone through an Agency, so the Agency took care of the payroll, taxes, W-2 [1099's], etc. One can hire a "payroll service" to do this for you, but there would be a cost for Mom.
One thing to remember, if Mom hires self-employed [independent contractors] as caregivers, Mom would need to obtain a workman's comp policy through her homeowner's insurance carrier. The workman comp policy helps cover the caregiver should the caregiver gets hurt on the job.