Can we pay a friend who is a caregiver/nurse without having to claim this on taxes?

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My mother has Alzheimer's. Our neighbor lives directly across from my parents has been a family friend for many years. She was a caregiver/nurse until all of her clients went to nursing homes or passed. She would be ideal, but we do not know if this is alright to pay her an agreed upon amount without claiming it on taxes? We want it to be legal? Agency type in home cares are beyond there means without wiping out their savings so would be ideal. This is in the state of Maine Thank you Vivian

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Pam, in this case the person is a long time family friend. That is a little different than hiring a stranger, I think. But good records and a contract are still important!
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I would want her to sign a contract, stating what she charges and agreeing that she is an independent contractor and agrees to be responsible for paying all taxes, unemployment insurance, workmen's comp insurance, garnishees and withholding. Get her EIN# or SS# and keep careful records. I would definitely want a background check.
I know agencies charge a lot more, but bear in mind that they pay all that stuff, they do the background checks, the training and certification. Sometimes it is worth a few extra bucks.
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Thank you all so much for your answers, and as I said we most definitely want to do this properly.
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I would spend the money down through an Agency and then apply for medicaid so that she can go to a nursing home which she is going to need at some point. Medicaid would not look upon the money paid to an Agency for her care as a gift and it is a tax deduction. To pay a friend of the family under the table is not right for one is really expected to give such a person a 1099 concerning their income for filing their income tax for the year.

Are you expecting this one person to provide 24/7 care? That is unrealistic and expensive. My dad has three people who stay at his house in 8 hour shifts.

Your question is for the short term, but I think that you also need to consider the long term impact upon applying for Medicaid.
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In order for there to be no complications if/when Medicaid is needed, there should be a written agreement between your mother and whomever she pays to take care of her. This is to prevent the money being considers a gift, as Babalou says.

If the neighbor has done paid caregiving before, she probably understands how to operate as an independent contractor. She pays her own taxes on a quarterly basis, including what would normally be the employer's tax (as self-employment tax). Or your mother could be her employer and take care of withholding taxes and employment tax. But either way, someone has to pay taxes in order for this to be totally legal.

It sounds like Neighbor is willing to work at less than a rate that an agency would charge. That is awesome, and could work out well for both Neighbor and Mother. But the amount should not be so low that taxes are not factored in.

I'll use round numbers for simplicity sake. Let's say that for a certain period of work the agency would charge $1,000. Of that, the worker might get $500. The rest of the money the agency uses for upkeep of their office, paying their office staff, advertising, background checks, and employment taxes. On her own, the Neighbor doesn't need to charge for office expenses etc -- but she DOES need to charge enough to cover her self-employment taxes.

In this example, if she charged $600 for that period, she would make about the same or a little more than she'd make going through the agency, and Mother would be paying less than what she'd pay an agency. Both come out ahead. And everything is legal.

I advice against doing this on a cash basis. For one thing, I don't approve of cheating on taxes. And I don't want to see Mother hurt if she has to apply for Medicaid. And Neighbor deserves a fair amount that will also cover her taxes and pay into her SS account.

This can work out wonderfully, Just do it correctly.
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Not sure what you mean by "claiming it on taxes". If you mean paying her cash under the table so that she doesn't report it as income, you run into an issue down the road if you need to apply for Medicaid for her. That money will appear to be a gift.
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