There might come a time when you will have to help care for your parents. In fact, that time might already be here.
Unfortunately, providing elder care for parents can be a full-time job. On average, caregivers spend nearly 24 hours a week providing care, but 21% spend more than 41 hours a week providing care, according to AARP’s Caregiving in the U.S. 2020 study. If you’re going to spend that much time taking care of parents, you might be wondering whether you can get paid.
The answer depends largely on your parents’ financial situation: whether they can afford to pay for care or whether their income is low enough to qualify for Medicaid, which may compensate family caregivers depending on their state’s Medicaid policy. If paying you to provide their care is an option, you certainly want to go about it the right way—the legal way, that is.
Be sure to take these steps if you’re getting paid to provide elder care.
Step 1: Determine the eldercare arrangement
How you handle payments from parents depends on what they are paying you for, says attorney Shannon Miller of The Miller Elder Law Firm in Gainesville, Fla. If your parents live with you and pay rent or reimburse you for household costs, that payment isn’t considered income. “Mom is paying her share of expenses,” Miller says. “It’s not a taxable event.”
Handling that sort of situation can be as simple as adding up household costs and dividing them by the number of people in the household to determine your parents’ fair share. Then they can make monthly payments without worrying about any tax or other legal consequences. Just make sure to document those expenses and the share of those expenses that your parents paid (more on why below).
It’s another thing altogether, though, if you’re providing elder care and your parents are paying you for the services you are providing. Those payments are considered income that you must report, Miller says. Because there are tax consequences to this sort of situation, it’s important to put the arrangement in writing.
[ Read: What to Know About Long-Term Care ]
Step 2: Agree on payment and create a contract
To legitimize your eldercare arrangement with parents, start by agreeing on your caregiver pay rate. The median pay in the U.S. for a professional home health aide is $24 an hour, according to the Genworth Cost of Care Survey. Your parents would have to pay around this much to hire someone, so your family caregiver pay could realistically be in the range of $20 to $30.
Once you and your parents agree on an hourly rate, put it in writing. The agreement doesn’t have to be drafted by an attorney, Miller says. Just make sure that the contract states what services you agree to provide and what your parents agree to pay for those services. You and your parents will need to sign and date the contract. If the services you provide or the amount your parents are willing to pay changes, you’ll need to write a new contract.
“You want family members to see it’s a real agreement to provide service,” Miller says.
Having a contract can help ensure other family members that you’re not simply taking money from your parents. “You want family members to see it’s a real agreement to provide service,” Miller says.
More importantly, if your parents apply to receive Medicaid, there needs to be a record that they were paying you to care for them. Medicaid does pay for long-term care services at home and in skilled nursing facilities for eligible low-income Americans. (Medicare does not cover the cost of long-term care.)
Eligibility rules for this joint federal and state program vary from state to state. It is common for states to allow family caregivers to be compensated through Medicaid. However, transfers of assets within five years before applying for Medicaid can affect eligibility. Without a contract showing that you were paid by your parents for care, payments could be miscontrued as a transfer of assets. “You don’t want Medicaid to think it’s a gift and disqualify Mom,” Miller says. “That’s why a written agreement is good.”
Step 3: Keep detailed records
If you’re getting paid to take care of parents, Miller recommends keeping detailed records of the days and times you provide care. In your log, also include details about what you did each day with your parents.
Make sure you only charge for time spent helping your parents. “Don’t charge for sitting around or having dinner together,” Miller says. Indicate in your log when you are on and off the clock.
“Other family members will feel better knowing you’re keeping a time log,” Miller says. Plus, that log will help build a case for Mediaid that there wasn’t a transfer of assets. And if adult protective services is ever called to investigate, you’ll have records that your parents were paying you for caregiving services and that you weren’t simply taking money from them, she says.
Even if your parents are reimbursing you for household expenses rather than paying you for care, you still should keep records to appease family members and Medicaid. Miller recommends labeling envelopes with each month and putting all of the receipts for items you purchased for your parents each month into those envelopes. Then have your parents write one check at the end of each month to reimburse you. You’ll need to hang onto those receipts because Medicaid will look back five years for transfers of wealth, Miller says.
Step 4: File tax documents
You need to report the payments you receive for taking care of your parents as income when you file your federal and state tax returns. If you don’t report that income, “you avoid paying income taxes,” Miller says. “That actually is a crime.”
Your parents also will run into problems if they apply for Medicaid and you haven’t reported the payments you’ve received from them as income. Those payments might be considered transfers of wealth, which could hurt their eligibility for Medicaid.
Your parents also will need to report the income they pay you. It’s best to work with a tax professional such as a certified public accountant to determine what tax forms to use to report your income and to determine what sort of tax liabilities you and your parents might have.
Writing a contract, keeping detailed records and reporting the income you receive as a caregiver will ensure that your arrangement with your parents is legitimate. Although it might seem simpler to skip these steps, the consequences taking the easy way out can hurt both you and your parents.
[ Keep Reading: How to File a Tax Return for a Parent ]