Compensation to Family Caregivers.
Growing numbers of aging parents are compensating their caregiving family members. However, it is important to disclose such caregiving agreements to the entire family, to avoid potential disgruntled and unhappy siblings, and the threat of a lawsuit.
According to a report by the National Alliance for Caregiving and AARP, 43.5 million Americans looked after a friend or relative age 50 or older in 2009, 28% more than in 2004.
"Obviously with the economy, we have seen many seniors retain their adult children rather than pay a home care agency or another person for their care,” states David Wingate of Senior Life Care Planning.
With the unemployment rate; the cost of home, assisted living facility and nursing-home care; and the changes to the Medicaid law, it’s only fair that the family caregivers be compensated. Some 37% of caregivers surveyed by the NAC in 2007 said they had left their employment or reduced their hours because of their caregiving responsibilities.
However, it is advisable to have a written “Caregiving Agreement.” Because, if your parent applies for Medicaid to pay for nursing-home costs, the caregiver agreement is permitted under the Maryland Medicaid rules and regulations. However, if you don’t have the caregiver agreement, then any money your family member receives may be deemed as a gift. Consequently, you would be disqualified for a certain penalty period, depending on how much your caregiving family member receives.
There are several ways to compensate the family caregiver; an hourly wage, an annual or a lump-sum payment, or an arrangement if the will or trust for the family caregiver to receive a larger inheritance.
The compensation depends on some factors, such as, (1) the caregiver's desire for income now versus later; and (2) consider tax consequences. Under federal law, when annual compensation exceeds $1,700, an employer and employee each owe federal payroll taxes of 6.2% for Social Security and 1.45% for Medicare. The employer must generally also pay 6.2% on the first $7,000 in wages in federal and state unemployment tax, and may have to pay worker’s compensation. (For more information, see IRS Publication 926, "Household Employer's Tax Guide.")
In lieu of compensation, you can make a gift. The current law allows people to give up to $13,000 a year to anyone, which also may reduce the amount of a taxable estate. While each person also is permitted to give away an additional $1 million over his lifetime, such gifts reduce the amount a donor can ultimately shelter from the estate tax.
However, if you need to rely on Medicaid, this approach is not advisable, as discussed above.Tags: aging parent, caregiver agreement, etate tax, family caregiver, family compensation, gifts, home care, IRS, medicaid, workers compensation