Tax season is upon us.
And since one in five Americans are family caregivers, millions of people across the country are caregiving: we have questions. Do family caregivers get tax breaks or do they pay taxes?
An average family caregiver spends about $7,200 a year on costs related to caring for someone. Paying taxes on top of that questions how much more can we do and pay for.
Here are some common questions about taxes and family caregiving.
How much money can I give my daughter to care for me tax-free?
Up to $18,000 a year tax-free as a gift. If you are married then both of you can each give $18,000 a year to the same person for helping you without them or you being taxed.
A family caregiver or an employee
Family caregivers are not technically considered employees —even if they receive payment from insurance or a government program.
But if you are a professional caregiver employed by your family through your agency. In these circumstances, family caregivers must report income and pay taxes.
Are you paid, professional care help?
Families hire household help and caregivers to help with chores and dependents at home. If the house is the employer, there are different tax-defined employee statuses they need to be familiar with.
You cannot pay them more than a certain amount (usually $600 a year) without sending them a 1099-MISC every year. Be sure to get their social security number and their address so you can send this to them. They will need to pay taxes. And you may also need to pay taxes. Check with your accountant but do this upfront so there are no surprises.
However, there are two cases in which you owe taxes for family caregiving.
If you run an adult or child daycare out of your home and care for the family member as part of those services
If you’re employed by a caretaking agency and have been assigned the responsibility from that agency.
If you work at a caretaking agency
Caregivers pay taxes if caring for a family member is part of their full- or part-time job. For example, if a caregiver runs an adult in-home daycare, they must pay taxes when caring for a family member as part of their day job.
You must pay taxes if you’re caring for a family member and getting paid as part of your job at a caretaking agency.
In this case, your family role is considered your complete- or part-time job. Therefore, the agency will pay Social Security and employee benefit taxes, and it’s your responsibility to pay taxes on the income received.
Caring for an elderly parent is a journey of love and sacrifice, encompassing both financial and emotional costs. While the financial burden can be significant, the rewards are immeasurable. Beyond medical expenses and home modifications, there's the emotional toll of watching a parent age.
Having said all this, financial stress can cause ill-health and bad relationships. Be sure, everyone in the family understands how much it costs, including taxes in order to care for another so one person does not carry the financial strain.