Workers who perform in-home services for disabled or elderly individuals have special rules when tax time rolls around. But, understanding who the IRS considers the caregiver’s employer is one critical part of these tax rules that confuses many caregivers.
If the caregiver employee is a family member, the employer might not owe employment taxes — but this depends on each caregiver and senior’s circumstances. Learn more about the self employment tax and tax breaks for Alzheimer’s caregivers.
What Alzheimer’s Caregivers Need to Know about Self Employment Tax and Tax Breaks
Senior Planning Services, a tri-state area Medicaid planning company, shares what information Alzheimer’s caregivers need to know about this tax season:
Determining a Caregiver’s Employer
Typically, the senior for whom the caregiver works is considered their employer. In some cases, however, that might not be the case. Seniors with Alzheimer’s, for example, might not be able to make those decisions on their own. As such, their adult children or the individual who hired the caregiver is considered the employer for tax purposes. While the services are performed for the senior, it’s still the other adult who is issuing instructions and who is ultimately in control. If the adult child is actually the one providing the care, then s/he will be considered self-employed as an independent contractor in this scenario.
Employee vs. Independent Contractor
Typically, an independent contractor is someone who is in complete control of their work conditions. They set the times when they’re going to work, the tasks that they’re willing to perform, and their rate of pay, and they’re free to change it at any time based on their changing needs. It doesn’t matter what hours they work or how many hours they spend on a task, as long as the task is completed adequately. In most cases, caregivers don’t have those options. For these reasons, they’re employees, not independent contractors.
Benefits and Drawbacks of Employee vs. Independent Contractor
Being an employee has a number of advantages for a caregiver. It means that the employer is responsible for paying a certain portion of their taxes each quarter, rather than the individual being responsible for them on their own. Working as an independent contractor allows the caregiver a great deal more personal freedom, but it also means that the contractor is responsible for providing the materials needed for care. In most cases, seniors will prefer to hire an employee rather than an independent contractor.
Alzheimer’s Caregiver Employer Obligations
There are several obligations that must be fulfilled by a caregiver’s employer. They include:
- Obtaining federal and state household employer tax IDs
- Calculating and withholding taxes for the caregiver
- Tracking employer taxes for the caregiver
- Filing federal estimated tax payments and state employment tax returns
- Preparing and distributing a W-2 to the caregiver at the end of the year
- Filing Social Security Form W-3 and Form W-2 Copy A
- Preparing a Schedule H form for their personal tax return
Navigating these waters can be difficult and time consuming, but failing to properly fill out the necessary forms can be viewed as tax evasion.
Alzheimer’s Caregiver Tax Deductions and Credits
Caring for an elderly loved one can be financially challenging. Thankfully, there are a number of tax deductions and credits available that will make it easier. Medical expenses that exceed 7.5% of your gross adjusted income, for example, are tax deductible, including nursing care, transportation that is essential for medical care, in-home care, personal care items like disposable underwear or special foods, home modification expenses like grab bars or wheelchair ramps, and in-home care, including caregivers, physical therapy, and other expenses. Caring for an individual with Alzheimer’s or dementia, including paying for a caregiver, can also qualify you for a dependent exemption.
If your elderly loved one has few enough assets and a low enough income, find out if they qualify for Medicaid, which will help pay for caregiving expenses, as well. You can also use your own workplace flexible spending account to help pay medical expenses for an individual who qualifies as a dependent — typically a parent or other senior loved one for whom you pay more than 50% of their care.
Navigating the frustrating waters of hiring a caregiver and paying them, taking care of taxes, and other critical concerns can be challenging. It’s an effort, however, that is well worth it. When you properly handle the tax forms and relevant expenses associated with caring for an elderly loved one with Alzheimer’s, you can significantly decrease the odds that you’ll end up in trouble for tax evasion later and even decrease your current tax expenses.
About the Author
Benny Lamm is a communication specialist and blogger at Senior Planning Services, an industry leader in helping seniors and their families achieve Medicaid-sponsored long-term care. He enjoys playing the guitar, spending time with family and social networking.
Are you an Alzheimer’s family caregiver who has used one or more of these tax breaks? Share a story about your experiences with us in the comments below.
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