What A Caregiver Agreement Is
A caregiver agreement for purposes of this article is a contract with a family member or friend to provide necessary personal services to a patient. In exchange, the adult child and/or friend receives money or other compensation.
Uses of Caregiver Agreements
Caregiver agreements are primarily used by people who want Medicaid to pay for care in a skilled nursing facility, assisted living facility or for home care who want to transfer money to a family caregiver without a Medicaid transfer penalty. Caregiver agreements are also used to prevent ill will that may happen if a caregiver works without pay but is then left extra money in a will to compensate the time and services.
Content of Caregiver Agreements
It is important to include certain basics when entering into a caregiver agreement with a family member or friend to show that there is an intent to have a relationship where payment is income instead of a gift (a transfer of assets for less than fair market value). For example:
- The compensation must be reasonable for the services provided and the geographical area in which they are provided.
- Agreements are not allowed to compensate for care which was already given.
- The terms of the agreement must be completed before compensation is paid.
- For additional information about that to include in a caregiver agreement, as well as a sample form, see the other sections of this document.
NOTE: If the agreement you are considering is to be used to qualify for Medicaid, check the provisions in your state about whether such an agreement will serve the purpose.
Taxes and Caregiver Agreements
With respect to taxes:
- Compensation under a Caregiver Agreement is taxable income to the person who provides the care.
- You may be able to deduct the cost of in-home services as a medical expense if your medical expenses exceed the threshold. The threshold for the itemized deduction for unreimbursed medical expenses is 10% of the taxpayer’s Adjusted Gross Income (AGI). However, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the close of the tax year, the threshold is 7.5% of AGI. In 2017 the 10% threshold will apply to all taxpayers..
- If the provider is an independent contractor (which most are), and the care recipient pays more than $600 in a year (as of 2016), the care recipient must issue an IRS form 1099, and give a copy to the care provider.
- If the care provider is an employee, employer taxes must be paid and employee taxes withheld. See the Household Employer's Tax Guide (IRS Publication 926), available at www.irs.gov
- If the caregiver is not a family member so you do not know his or her legal right to work in the U.S., it is your job to verify the caregiver's legal status.
Proof for Medicaid
Once a caregiver agreement is in place, it is helpful to have proof available in case Medicaid tries to impose a transfer penalty period based on the agreement. One way to do this is to keep track in a diary or on your computer of:
- The services which the patient needs.
- The services the caregiver provides under the caregiver agreement for the benefit of the patient - preferably on a daily basis
Medicaid may also request medical evidence of the care receiver's medical condition as proof of the need for services provided under the Agreement.
If you have close family members other than the person who is to act as caregiver, it is advisable to let them know about the arrangements in order to avoid later problems
Check your Homeowners Insurance to be sure the caregiver is covered on your premises. If the caregiver will drive your car, or drive his or her car for you, be sure your Automobile Insurance policy covers.
For more information:
- Independent Contractor Versus Employee
- Minimum Features To Include In A Caregiver Agreement
- Services To Consider When Drafting A Caregiver Agreement
- How To Determine Reasonable Compensation For A Family/Friend Caregiver
- Sample Caregiver Agreement
- Keep in mind that caregivers may experience burnout. A helpful publication for caregivers is Taking Care of YOU: Self-Care for Family Caregivers published by Family Caregiver Alliance available at www.caregiver.org
- Consider using discussion with family members about the agreement as a trigger to discuss estate planning subjects such as Advance Healthcare Directives which describe what people do or do not want to happen medically if they become ill and unable to speak for themselves, and funeral desires. Life is fragile.