[By Attorney Nicholas Lutz]
Paying a family member to provide needed care is a way for care recipients to have their needs met by someone they love and trust. But problems can arise unless the necessary steps are taken to legitimize this arrangement.
The value of the care provided by family members is tremendous. The monetary value of services provided by unpaid family caregivers to older adults has been estimated to be as high as $375 billion per year. This is roughly twice as much as the estimated amount ($158 billion) spent on paid home care and nursing home services combined.
Financial Losses for Unpaid Caregivers
The cost of caregiving has economic impact on multiple levels. According to a 2011 Gallup report, the economic impact of absenteeism by full-time workers who are also caregivers is more than $25 billion annually.
Some caregivers find that they cannot continue to work and take care of their loved one, and are forced to leave their job. In addition to losing their wages, caregivers who are not employed do not pay into Social Security, thereby reducing their retirement benefits. They are also unlikely to contribute to retirement accounts for themselves. In short, the financial losses suffered by unpaid caregivers can be long-lasting.
There is a solution, however, to the unpaid caregiver’s dilemma: getting paid for the care they are providing. Family caregiver contracts can legitimize an employment relationship between the care recipient and the caregiver, provide for appropriate payment for services and detail the scope and types of care to be provided.
Reasons to Avoid Under the Table Payments
For families considering a paid arrangement, there are many reasons to avoid making the caregiver payments “under the table.”
First, the Pennsylvania Medical Assistance program is likely to treat such payments as gifts. Unless there is a family caregiver contract, the presumption is that the care was provided for "love and affection and the money paid to the family caregiver will be presumed to be a gift. Gifts can make you ineligible for benefits. This means that the care recipient could be denied critically needed public benefits because there was no written family caregiver contract. (The VA has recently proposed similar gift related penalties for veterans seeking pension benefits).
Second, cash payments under the table can create major problems for both the payer and the recipient. You may be breaking the law by not paying and withholding taxes. This includes not only income taxes but Social Security, Medicare, and other state and federal taxes. To avoid problems, the care recipient must treat the paid family caregiver as an employee and withhold appropriate taxes.
A family caregiver contract will help you stay “above board” with Medical Assistance and tax authorities and avoid all sorts of negative consequences.
Family caregiver contracts are a great tool in the elder law attorney’s arsenal to help families transfer funds to a caregiver who rightfully deserves to be paid for their hard work. Because the agreement between the parties is a contract involving complicated consequences, it is important to work with a knowledgeable attorney for advice and preparation.
If you are interested in learning more about caregiver contracts or seeing if a caregiver contract is right for your situation, you can schedule a free one-hour consultation with myself or one of the other attorneys at Marshall, Parker and Weber.
[The above article was written by Nicholas Lutz an attorney with the Pennsylvania law firm of Marshall, Parker andWeber]