Do we need to pay withholding taxes to the state for a part time caregiver?

You do not give enough information for the question to be answered. Does the private caregiver have a business, even if it is just a dba? Do you get an invoice? If so, you would need to collect a W-9 and send out a 1099-NEC. If she does not have a business, you would need to do a W-4 and withhold taxes.

This year is so screwed up due to Covid. So what you need to do is research if your state passed essential worker/caregiver hazard pay act. Here, they all were required to get $2 extra per hour and received a $1600 bonus. If your state did the same, did you comply with the rules?

Your situation is complicated so more info is needed.

Peachy404, it depends on how the private caregiver wanted to this to be, an Employee or an Independent Contractor. An Independent Contractor herself pays estimated quarterly taxes to the IRS. The employer, your Mom, then would need to draw up a 1099 for the caregiver to use for April income taxes.

If payment is "under the table", and if your Mom later need to use Medicaid [which is different from Medicare], Medicaid may see those check payments as "gifts".

Also, please note, if one has a private caregiver who is not employed by an Agency, the homeowner would need to check with her home insurance carrier. She may need to have a "Workman's Comp" police in case her caregiver becomes hurt on the job.

Is there a sample of a "contract" or 'agreement' available for preview online? I have been paying "cash" payments for lawn care to young people wanting to earn money and I paid cash $2,000 for tree removal as they requested to be paid this way. Do I have to explain every dollar spent? I use cash to pay others who deliver groceries to us etc.? I do make notation in checkbook to help me remember why I made a cash withdraw.

States have a description of what constitutes an employee vs. contractor. In MN where I live, there are 20 conditions that defines what is a contractor, but your accountant or an attorney can clarify this for you or you may find it on your state's website. Some basic guides we use are:
- you are their only client
- you dictate when and where they work

If you are not the caregiver's only client then I think it is safe to say this person would be considered a contractor. If it turns out they are (as defined by your state), you are not responsible for any employment taxes, they are. I'm not sure what type of wage reporting (if any) you are required to do. Again, you must know what the rules are in your own state.

We have all our individual contractors sign an agreement no matter how long we've known them. You need to be protected and a contract helps to clarify the relationship. Paying by check or other "trackable" methods (like PayPal) is recommended.

There could be repercussions for your mom. You need to see an elder law attorney to prepare a caregiver agreement. Mom then becomes an employer with all taxes and Medicare, etc withheld.

If there is no agreement in place if mom needs Medicaid within five years payment to caregiver will be thought to be a gift, making mom ineligible for Medicaid until five years has passed since last under the table was made.

This could easily jeopardize mom's Medicaid eligibility. Get it done legally to protect mom. Sibling is right.

You probably won’t like this but....it’s the employers responsibility to withhold taxes. The caregiver is not an independent contractor, she’s an employee. It’s not her responsibility to report her income to the IRS and the
state, it’s her employers responsibility. Your sibling is actually right about possible repercussions. Aside from the IRS catching wind that the caregiver is paid under the table, if your mother will need medicaid for long term care in the next few years, you will have a hard time explaining where the money went since there is no actual paper trail.