Taxes and Caregiving
When caring for a parent becomes more of a job, or it is costing you so much that you now have an additional dependent, it is time to investigate how this may impact your income tax situation.
Let me describe two common scenarios for you.
1. Mom pays you an hourly or weekly wage for the care you provide.
In this situation your mother is your employer. You are either an independent contractor or an employee. If you receive over $2000 in a year and provide this care in your mother's home read IRS publication 926. https://www.irs.gov/pub/irs-pdf/p926.pdf, and https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-tax. These publications go through the ins and outs of this situation, and they will help you determine how to handle this employment situation with your mother.
A contract is a highly desired element to an employment situation with your parent. The contract needs to spell out what is to be provided, when and for what compensation. To keep peace within your family, this contract is essential. If you have siblings, it is very important that everyone is in agreement as to the terms of the contract. I understand that you may not desire a contract with your mother, but when you are getting money that your siblings are not, it is best that everyone agrees to prevent trouble later.
2. Dad lives with you. You provide housing, food, and cover all of his expenses. He collects social security and a small pension that covers some of his expenses. You pay for the rest.
Is dad your dependent? He may be. It will be based on his gross income and the amount that you contribute. A quick way to find out is to go to the link below and complete the IRS questionnaire that has been set up to answer this question for you. https://www.irs.gov/uac/who-can-i-claim-as-a-dependent. I completed this questionnaire and found it to be very simple. Did you know that there are income limits to claim a parent as your dependent? So take the questionnaire, and find out if claiming your father as a dependent is possible for you.
As you navigate the caregiving landscape with your parents, it will be helpful for you to investigate the financial impact of caregiving decisions you make with your parent. Your accountant can answer questions about the tax implications of your decisions, and your lawyer can assist with a contract if one is needed. Every situation is a bit unique, and these professionals may be well worth the cost.
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