Dorothy lived alone after her husband died. Soon, her son Damien began to notice that she didn’t have enough clean clothes, her fridge was empty, and she had fallen a few times. Clearly if Dorothy were going to stay at home – and who wouldn’t rather do that, if possible – she would need help. Damien was willing to move in and care for Dorothy, but he would have to sell his house and quit his job, losing employment benefits and putting his career on hold. However, if he could be paid for Dorothy’s care, that would ease the sacrifice considerably.
Paying an adult child or a friend to care for an elder can work well for many people who find themselves in Dorothy’s and Damien’s situation. There are potential pitfalls, however. These include family conflict, public-benefits complications, and tax concerns. All of these can be minimized or avoided entirely, by putting the employment agreement in writing, just like for any job.
A well-considered written agreement is a must, for the following reasons:
Avoiding family strife. Making a contract will help other family members understand clearly who provides care, what that care will be, and how much money changes hands. It is fair to compensate Damien for his efforts, but it is also fair to show the agreement to any siblings. Their inheritance will be affected by payments to Damien and they may not be aware of Dorothy’s care needs.
Tax considerations. Damien will be considered Dorothy’s household employee. Dorothy will need to pay employment taxes as Damien’s employer, and give Damien a W-2 each year to reflect his wages. Damien should report the wages on his tax return. Although this may be a hassle for Dorothy, it allows Damien to continue to receive credit for social security and Medicare wages. Many child caregivers don’t realize that in quitting outside employment to care for their agent parent, they are jeopardizing their retirement benefits.
Planning for public benefits. If Dorothy’s condition worsens and she eventually needs long-term nursing-home care, she may need help from Medicaid or Veterans’ programs to pay for the staggering costs of that care. However, if Dorothy has simply given money to Damien for taking care of her, those assistance-programs will interpret the payments as gifts to Damien and she may be ineligible for benefits or penalized. To avoid that needlessly costly result, Damien’s compensation must be shown to be a salary and not a gift. A written care agreement, proper payment of employment taxes, and proper maintenance of logs and records, will accomplish that goal.
A written care agreement should contain the following specifics:
- A detailed description of the care provided. For example, transportation, running errands, food purchase and preparation, laundry, bathing, bill payment and checkbook balancing, house cleaning and maintenance, payment of fees for adult day-care, and recreation.
- The caregiver must keep a detailed time log of services provided.
- How much is to be paid, and how often. The amount should be comparable to the cost of professionally provided services. The agreement should also allow for reimbursement to the caregiver for out-of-pocket expenses, which also must be logged.
- How long is the agreement to be in effect – a year or two? Over the person’s lifetime?
- How the agreement may be terminated.
- Provision for a “back-up” caregiver, if the primary caregiver were to become ill or need a break.