Friday, January 28, 2011
Family caregivers may not have to pay FICA tax when compensated -- check with tax advisor
Frequently, family caregivers can get paid, either out of the elder’s trust or savings, or long term care insurance policy, and sometimes state programs. Technically, caregiving is wage-earning work subject to Social Security and Medicare taxes and reportable that way. But it appears that the IRS and Social Security allow exceptions in some cases: the income must be reported, but it may be exempt from these payroll taxes. The IRS Publication for this event is here. It also gives a link to Publication 926.
It’s unclear what happens if the family member is supervising (as a “matrix manager”, working with an agency) caregivers rather doing much of it hands on, or how managing finances, errands, doctor’s appointments, and the like fits in. Anyone in this situation (as I have been) should consult with a tax advisor relatively early in the tax preparation season (or, preferably, before a caregiving situation has developed). But it seems as though there’s a good chance it would not have to be paid.