His lawyer set up his care agreement and said that we would just have to list the money as income on our 1040. Our CPA said that we would have to pay into SSI/Med but also said he didn't know anything about care agreements and wanted us to list the money as a gift. We know we can't due to Medicaid possibility.
I think people are confusing my question and possibly you as well. Any money that we receive for care for my father in law will go on our taxes as income. What I'm trying to determine is IF we have to pay into "employment taxes" like Medicaid/SocialSecurity on this money as well??
Our Elder Law attorney that we paid a decent amount of money to says that we do have to claim this money as income but DO NOT have to pay into Medicaid/SocialSecurity per our contract and being Family. Me being a lay person who don't know much about taxes have read numerous IRS documents and I'm 50/50 on if we have to pay into those taxes.
Once we find a new CPA I am going to set up a meeting between the lawyer and the CPA so that they undderstand where our lawyer is coming from. I could have our lawyers firm do the taxes but he charges $500/hr and his other CPA's $350 so I'd like to find someone who isn't this expensive!
Thanks
In some states it is not considered income and not taxed either (up to a certain amount).
Your best bet would probably be to speak to an accountant and visit the tax department in city hall where you all live. If they cannot answer your question about whether or not this is taxable income, they will certainly be able to put ypu in touch with the people in the state who can.
I really believe you would be best served, at dads expense, to get your attorney and CPA in the same room. Let them teach each other and you take great notes or record the entire meeting. This is a great example of why we are willing to pay professionals big bucks, they should know and be willing to share to ensure that your best interests are covered. Legally, of course.
Does he also pay for physical caregiving (bathing, dressing, feeding, pills, etc.)? That can be income as well and may be financially beneficial to you even if taxed. When my dad was living in my house, a company approached me and said I could be paid by them (I don't know if I would have been an employee or on contract) to provide caregiving to him.
I disagree with the people who say you shouldn't be asking questions here (and to the person who mentioned surgery, I would totally talk to regular people about an upcoming surgery; people who have been through the experience could give you good info you can take to the doctor). I like to be prepared when I go to a professional, especially something dealing with money since I know little about financial subjects), especially one who charges $300-plus an hour. That could add up fast if you have no input going in. You just shouldn't make assumptions based ONLY on lay people's perspectives and experiences, wise as they may be. Best wishes with your father-in-law and the financial situation.
Just so you know, yes, 1040 income is taxable and that means SS/Medicare 15.3% is payable by you, (unless you exceed the 160k FICA taxable income cap) one benefit is that the 7.65% that is employer match is 100% deductible. So you aren't really getting hit with that extra tax.
Unfortunately, many attorneys forget or don't know to inform clients that income is taxable and what your overall financial situation is will dictate what that means exactly.
If this throws you into a difficult situation, it is time to modify the compensation agreement to make it work for you.
If it is all inclusive, that needs to change. Dad should be paying all the above separately from your care contract. None of the share of costs would be income to you.
If it is inclusive, you can increase your care contract for 2024 to offset what the agreement cost you for 2023. But, get that separated starting for 2024, there is no reason to have everything under your care contract, not even medicaid thinks people live for free, he can pay for his room and board without fear of penalties, especially since you have a care contract.
The lawyer who did all of our documents is known for dealing with Estate law, Medicaid and trying to keep as much money out of their hands. They said we do Not pay taxes on it and if we wanted to use his firm to do taxes they charge $350/hr which is one reason why I'd like to use a different CPA.
I would think that they (lawyer) had done this for multiple clients and if it were taxable someone would have gotten in trouble with the IRS for Not doing so. Our CPA doesn't know the answer so he asked us to find a new one if we wanted to Not have taxes taken out.
Thanks
I would request that service and pay the money to get this established on the 1st year return with this new "income". Then it is just repeated annually.
This gets complicated and isn't DIY material.
Much depends on how a contract is written and where it is written. State's rules differ. And there is a difference between "payment for care" and "reimbursement". And a difference between "shared living expenses " say for mortgage, bills, costs of needed renovations, and etc. and "payment for care" which is taxable and reportable as income.
We are just caregivers. You don't need the opinions of caregivers on a Forum on this stuff. When you need surgery you don't go to a Forum and when you need tax advice you shouldn't either. Speak with the CPA and show your contract for care.
I'd look for new "professionals" if I were you.
Hopefully, Sportster04 has taken the question to someone who routinely prepares payroll taxes for caregivers.
There are all kinds of exceptions in the tax code, but I have not heard of one for adult children providing care to their aging parent.
I agree with your attorney, but if you don't trust his advice do get it in writing. THEN if you get in any trouble with the IRS now or later you will take in the advice you were given. While you might then owe some back money, you would be forgiven the interest I do believe given how hard you have attempted to do this correctly.
You can also call the IRS (expect a long wait online and expect someone working from home who will put you off with research and a reply by letter about 3 months out, but they WILL reply).
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