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In other words a family member is being paid from the elderly person's funds. This person believes they don't have to claim the amount they are paid as income on their tax return.

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I would check with the IRS or an accountant regarding the taxation of the income. I'm sure there is some type of tax that is due, unless the funds are gifted (use the annual exclusion of $13,000 per year) by the parent. If there is some type of payment coming from the parent and at some point in the future they may be applying for Medicaid, I would recommend documenting every check that was written so it does not interfere with the "lookback" period.
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I'm not an expert but it seems to me that any kind of income is required to be reported to the Internal Revenue Service.
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Check with the IRS and get the answer in writing for your record--name of the agent, date of the appointment, etc....Amitebird is correct on the gifting aspect; but so is SierraSeven about the social security benefits, unemployment, etc. If you follow the IRS agent's advice, whatever it may be...then you have a shore up against an audit down the road.
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Yes, definitely. I am NOT an attorney, or a tax lawyer, but I was a paid care-giver for my father for several years before he went into a nursing home. Here's what I know - but please feel free to check with the IRS or a tax expert.

In this example, the parent is considered an employer of a domestic employee, just as if the care-giver were unrelated. The employer (the parent or elderly relative) needs to have an employer ID number from the federal and state authorities (see the Social Security website, the IRS website, and your state tax website for how to do this). The employer needs to pay unemployment-insurance taxes in most states - in my state, this is done quarterly, and is easy to do on the state website. The employer needs to generate a W-2 for the employee, which is also easily done online.

If the employee wants withholding taken out of his or her wages, that paperwork has to be done, too. Otherwise, the employee will have a tax bill to pay at tax time.

If the employer itemizes deductions on taxes, some of the wages paid to the care-giver may be deductible as medical expenses.

If the elderly relative is receiving insurance benefits, Social Security, veteran's assistance, other disability assistance, Medicare, or Medicaid, and if the services the relative provides would otherwise be paid for by the insurance or assistance if the care-giver were unrelated, it's perfectly legal for the benefits to pay the relative for that same care.

Now, it's true that a lot of people get away with an "under-the-table" arrangement for a long time, but if there were ever any audit or if an insurance company or veteran's or other government assistance program should notice some discrepancy, it could wind up costing the elderly relative and the care-giver big time in fines and penalties.

Also, if the pay is "under the table", and the care-giver is doing this long-term as full-time or sole employment, if the taxes and paperwork aren't done, it won't count toward Social Security benefits for the care-giver, and won't count toward unemployment benefits. So the care-giver may be in for an unpleasant surprise when he or she files for SS benefits in the future; or, if the relative dies and the care-giver decides to apply for unemployment benefits, the care-giver will be denied.

I know that was a long answer - but here's the short answer: the relative who says the income doesn't have to be reported is WRONG.
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Sadly, Yes. You will be considered an independent contractor for tax purposes.
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I would think the parent being cared for could "gift" the caretaker up to $13,000 (I believe) without the caretaker being taxed on it.
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Yes Absolutely,and it amounts to about 30% of your pay. If you dont, you will have to pay it back so do it right. I have been doing it and hired an accountant, keep all your receipts and records immaculate, you will need them.
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What a great life -- working 24 hours a day, no salary, but no taxes!
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it can be considered a gift in which you would not have to claim it as income
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@Carol72...all income is not taxable--fyi--a tax expert can give you the list--whether from the IRS or other.
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