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Posted July 5, 2011

Ask An Expert

Ins and Outs of Taxes and Family Caregiver Pay

Q. My parents have moved into my residence due to health. They can no longer take care of themselves, and I am a CNA (certified nursing assistant). They want to compensate me instead of hiring outside the household for daily care. I would like to know how to pay into my Social Security and pay the federal and state taxes properly. 

Lee P., Arnold, Missouri.

A.  

If your parents intend to pay you, they would do the reporting on Schedule H of their Form 1040.  This form reports payments to household employees.  It might be hard to argue that you are an independent contractor with regard to your parents, due to the situation, so you would probably be considered an employee.  They can withhold federal and FICA taxes for you and send the payments in when they file their Form 1040, and include Schedule H reporting the amounts.  Depending on the amount of money involved, you may need the services of a CPA to determine what additional quarterly estimated taxes they might need to pay to cover the employment taxes, and to assist with state filings for unemployment insurance.

 There could be a possible exception from self-employment taxes because you are caring for relatives, but due to the fact that this is your profession, it would be difficult to support.  Another alternative would be for your folks to make non-taxable gifts to you.  They could each “gift” you $13,000 without any tax consequences to them or to you. 

 You may need to consult with your own CPA to decide which method saves the most taxes for all parties involved.

 

This answer has been provided by Carol I. Katz, MS, CPA, the Deputy Tax Director at Leonard J. Miller & Associates, Chartered.  Carol Katz works exclusively in the tax and estate planning areas, has been published in professional journals and has discussed tax issues on television and public radio.  Any tax article or comments are not intended or written to be used, and cannot be used, for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code on the taxpayer.  Carol can be reached at carolkatz@lenmiller.com

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