My two sisters and I have been taking care of our 96-year-old mother, in our homes, for almost three years now. Mom has dementia and is wheelchair bound, but our biggest challenge is that she is totally blind so she needs us with her at all times. We have used $100 per week of her money to cover expenses until now. ($.60/hr)! Now that her house is sold and her care is becoming more challenging, we thought it best to contact an elder care attorney and draw up a formal agreement, at the same time taking a more realistic compensation, such as five dollars an hour. We do not want to be greedy, as we care for her because she is our mother. The attorney mentioned that this would become an employer-employee arrangement and we would have to pay taxes and fill out a W-2 form each year. Is this something that anyone else has had experience with? Are we on the right track? Do we really need to file this way? What are potential consequences if we just document the money for social security purposes and leave the IRS out of it?

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You must declare all the wages you receive with the IRS and the state dept. of revenue.

Your parents will have to get an employer ID with the IRS and do withholding. Taxes, social security, and Medicare withholding.

The IRS will penalize your parents if they are caught. The IRS specifically defines ALL in home care givers as employees. The penality is that not only would they have to pay all the back taxes and withholding...but the fines are huge!

The easiest way to do this is to sign up with a payroll processing firm, Like HomeWork Solution.,or some like it.
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