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Accounting Tips for Families With an In-Home Caregiver

7 Accounting Tips for Families With an In-Home Caregiver

Many families hire an in-home caregiver when a parent or senior loved one needs more care than they can sustainably provide. It can sometimes be difficult, however, for families to keep their accounting and payments to a caregiver in order when they are so focused on providing for a loved one.

Read our list of seven steps that you can take to ensure your finances are in shape when hiring an in-home caregiver.

7 Accounting Tips for Families Who Hire an In-Home Caregiver

A big part of getting it right is making sure you do all your accounting, payments and reporting properly.

If you are considering hiring an in-home caregiver, make sure you follow these seven steps:

1. Determine if you qualify for a tax credit.

“There could be a tax credit for some of the wages paid to the caregiver,” says tax attorney Deltrease Hart-Anderson.

If your parent or senior loved one is incapable of self-care and your income falls into the right range to qualify, you may get some money back (or at least owe less on your taxes).

Remember to ask your accountant about which tax credits are available and whether or not you qualify. There’s no reason to leave money on the table if you can get it back.

2. Keep records of all your payments.

For you to be sure you’re paying your in-home caregiver enough and listing the payments properly on your taxes, you need to know the exact amount that you pay them. “Keeping good records and getting the right tax professional’s assistance is going to be key,” says Hart-Anderson.

Keep a record of every payment you make:

  • How much the payment was for
  • What the payment covered
  • When the payment was made, etc.

If you’re paying hourly, then keep a record of the exact hours the caregiver worked in a way that’s accessible to both of you, so you can make sure you’re on the same page.

3. Make sure you classify your in-home caregiver correctly for taxes.

“The main advice for taxpayers preferring to care for loved ones at home… is to know if this caregiver is considered a household employee in the eyes of the IRS,” says Hart-Anderson. Understanding your caregiver’s legal status will depend on the amount you pay them and their relation to you.

“Wages paid to a child under age 21, parent or spouse (with some exceptions) are not considered household employment wages,” Hart-Anderson explains. If your caregiver is considered a household employee, then all associated laws apply. If you’re later found to be in violation of any of those laws, it could cost you.

Misclassifying an employee or failing to report them at all in your taxes could lead to your owing significant back taxes and wages and potentially having to pay high penalties as well. Your attorney will help you determine the proper classification and clarify your responsibilities so you don’t inadvertently break the law.

4. Pay over the table.

When you’re hiring someone to work in your home, especially if it’s a fellow family member, it can be tempting to just keep the payments between you. It seems like an easy way to cut down on paperwork and tax concerns. But it’s a bad idea.

Make sure you pay your in-home caregiver in a way that’s easy to trace, that it’s an amount that meets the minimum legal requirements in your area and that you file the proper paperwork to ensure the government recognizes the person as your employee.

It’s worth noting here, if you go through a home care agency, they’ll often take care of some of this for you. Ask them if their caregivers are classified as employees of the agency. If so, then the liability and paperwork will mostly fall in their court.

5. Report the earnings to the SSA and file a Schedule H.

At year-end, you will also be responsible for reporting all earnings and taxes withheld to the caregiver to the Social Security Administration. Yes, the Social Security Administration, not the IRS,” explains Hart-Anderson.

But you will need to make sure you also file a Schedule H to the IRS with your taxes. That’s the proper form to use for household employees.

Your attorney can help you get all the proper paperwork in order come tax time, so you don’t overlook a form or skip a step.

6. Talk to an accountant in advance.

This is the most important tip on the list because laws vary by state and each particular situation is different.

A professional that’s able to review your unique situation and provide advice tailored to your needs is the best way to make sure you get things right before you risk any trouble.

Set up an appointment with an accountant sooner rather than later and follow all the advice they give you.

7. Withhold and pay Medicare, social security and unemployment taxes.

“If you pay the caregiver $2,100 or more during the year, then you need to withhold and pay Medicare, social security and unemployment taxes from that income,” says Hart-Anderson. “If you pay wages of $1,000 or more in any quarter of the year, then you need to pay federal unemployment taxes on the wages.”

Every employer is responsible for paying into these services for their employees, so if the in-home care aid you hire is a household employee, it’s important you pay the full tax amount you owe.

If you go through an agency that classifies your caregiver as their employee, then they’re expected to cover the employer tax responsibilities on their end, however.

Hiring an in-home caregiver can be complicated, but it doesn’t have to be, if you keep your accounting and payments in order and follow these steps.

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