September 22, 2016
Mom Needs Help. What Now?
We have noticed with increasing frequency Mom is confused about whether she has eaten, or has taken her medicine or any number of similar day to day activities that she has successfully managed for years. Whether it is an onset of Alzheimer or any number of other debilitating diseases it is obvious Mom cannot cope, even to the point of needing constant monitoring. When confronted with this deteriorating situation, Mom, after much denial, makes clear she wants to stay in her home.
As you discuss this situation with other family members and Mom it becomes clear that no family member has the appropriate training or skills to fully handle Mom in her decreasing capacity. Since staying in her home is not negotiable the choice is reasonably obvious. The family must acquire after exhaustive interviews and evaluation a competent caregiver, either from an agency or individually. This person or persons will then be supplemented by a family member to fill in the gaps.
If the family decides to go through an agency the caregiver will be considered an employee of the agency and therefore the various costs of employing a person- taxes, insurance, and labor law provisions- are handled by the agency. Of course these costs get passed on to the family along with the basic compensation. The total bill can get very expensive.
Instead, the family can just advertise or ask a friend’s caregiver if he or she knows of anyone looking for a position. Assuming after careful scrutiny the family and Mom agree on an individual that person becomes the caregiver. We understand and the caregiver acknowledges his or her understanding of the agreement as an independent contracting one. The caregiver will be responsible for reporting the income, paying the income tax and pay any employment or payroll taxes that arise. The family needs only to send a statement at the end of the year of the total compensation paid to the IRS and the caregiver.
Good luck. Both the IRS and the Department of Labor (DOL) have made quite clear in recent publications and findings that the traditional caregiver scenario that we have suggested arising is an employment situation; the family, the employer and the caregiver, the employee. As an employer the first thing that the family must determine is that the caregiver can be legally employed in the U.S. Assuming this requirement is met, then the laws require the family (employer) to 1) Collect and report the caregiver’s withholding tax obligation; 2) Collect and remit the caregiver’s social security and Medicare tax obligations as well as pay the family’s match of these taxes; 3) Pay state and federal unemployment taxes on taxable wages; and 4) Maintain appropriate records.
Why not just pay cash under the table? Who is hurt? First, the family loses out on possible medical deductions and possible dependent care credit. Second, the caregiver does not benefit from a build up of benefits in Social Security. And it is the latter item that often triggers the issue for the authorities when the individual applies for Medicare or Social Security and the record is nonexistent. Because returns were not filed the government can go back many years including interest and penalties.
Compliance is the right and smart thing to do. The family may get valuable tax breaks and reduce exposure to later challenges and the caregiver is vested in Social Security and Medicare and protected for unemployment. The key is to recognize that the independent contractor approach will not work.
The combination of running a business and your life and preparing for tax time can drive some people into a slight panic. But no need to get stressed if you are prepared. Now is the time to start organizing all documents required to file your tax return.
Like the old paraphrased saying goes: In this world, two things are certain—death and taxes. The recent federal tax overhaul changed a lot of rules, so it’s as important as ever to understand your tax obligations, including those on Social Security benefits.
Unfortunately, cyber scammers never take a vacation. In fact, the IRS has issued a warning of a surge in fraudulent emails that bait potential phishing victims with fake tax transcripts. Links within these emails lead recipients to documents containing the well-known malware, Emotet.