With tax season upon us, it’s a good time to give a shout out to those who perform paid in-home services for people with Alzheimer’s disease (AD).
Tax laws for care recipients and paid caregivers can be very confusing. The information below is aimed at helping AD caregivers to better understand some basic parameters when it comes to taxes and providing care in the home for pay.
There are some very specific rules enforced by the IRS regarding who is legally considered the caregiver’s employer. This is s critical aspect of the tax laws, and may be one of the most confusing for caregivers and people with AD.
Employment Laws for Alzheimer’s Caregivers
In general, the IRS says the care recipient (person receiving the care, or the spouse of the care recipient, is the employer. The exception is when a person with AD (or any other disability) is unable to give directions to the caregiver. When the person with AD is unable to give directions and there is no spouse, an adult child of the person with AD may perform the role of the employer.
If the employed caregiver is a family member, the employer may not be required to pay any employment taxes depending on the specific circumstances.
When an adult child provides paid care for a parent with AD, the adult child providing care may be considered self-employed as an independent contractor, but there are exceptions to this rule.
Employee vs. Independent Contractor
Typically, an independent contractor is a person who is in complete control of their work conditions. They set the hours they plan to work, the tasks that they sre willing to perform, and the rate of pay expected. Independent contractors are free to change their work hours, job duties and pay rate at any time. It doesn’t matter what hours they work or how many hours they spend on a task, as long as tasks are completed satisfactorily.
In most cases, AD caregivers don’t have the flexibility to be considered independent contractors. The job tasks required to perform caregiving for a person with AD are not usually flexible (particularly in the later stages of the disease). Job duties performed by caregivers must be carried out during specific hours each day (such as medication administration and daily meals). In addition, many people with AD require around the clock supervision. For these reasons, most caregivers are considered employees, not independent contractors. The exception might be when a person with AD is in the early stages of the disease and can still provide for his/her own activities of daily living (ADL’s). In this scenario, the caregiver may stop in randomly to check on the care recipient, run some errands, or perhaps oversee that bills are getting paid on time.
Tax Status Benefits and Obligations
There are numerous advantages for caregivers who are considered employees. For example, the employer would be responsible for paying part of the quarterly taxes every year. Independent contractors must pay 100% of their tax liability on their own. Independent contractors must also provide all of the materials required for performing caregiving tasks (such as charts to document medications).
In an employee scenario, the employer must:
-Obtain federal and state household employer tax ID
-Calculate withholding tax for the caregiver
-Provide accounting for employer taxes for the caregiver
-File federal estimated tax payments and state employment tax returns
-Prepare W2 forms for the caregiver at the end of each year
-File a social security form W3
-Prepare a Schedule H form for personal tax return
Seniors who employ family members or others as caregivers for paid reimbursement must not fail to fill out all required forms. The alternative could result in consequences from the IRS.
Tax Deductions and Credits
Medical expenses that exceed 7.5% of the gross adjusted income are tax deductible, these include:
-Transportation for medical care
-Personal care items like disposable underwear
-Special foods (like medical foods)
-Home modification expenses (like grab bars or wheelchair ramps)
For more specific information on tax laws for caregivers, contact a certified accountant or seek legal counsel.
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