eletIt is estimated that 39% of U.S. adults provide care for someone with significant health issues, according to the Pew Research Center. Many of these individuals are unpaid family members. It is common for an adult child or other relative to provide care for an aging or disabled adult. Sometimes the elder receiving care may want to offer compensation to the caregiver, or the caregiver may require compensation to make up for all the time an energy that goes into providing care. If there is to be any payment between the elder and the caregiver, it is very important that it be done legally and completely above board to prevent unwanted consequences for the elder, the caregiver, or both.

At Elder Law of East Tennessee, we advise all of our clients who wish to enter into a private paid caregiver arrangement to use a Caregiver Agreement. A Caregiver Agreement is a kind of contract that lays down the responsibilities of both parties and clearly outlines the proper flow of payments between them. It is a way of legalizing the private caregiver’s work, even if they are providing care for a friend or relative. We cannot emphasize enough how important it is to establish a Caregiver Agreement before paying someone or receiving payment for private caregiver services.

Consequences of Hiring a Private Caregiver Illegally (without a formal caregiver agreement):

  • It’s against the law to hire someone under the table. If discovered by the IRS, the elder employer may be subject to payment of back taxes, penalties, and interest.
  • The elder may pay additional penalties in the form of professional fees if it becomes necessary to hire a defense attorney.
  • The elder may be susceptible to blackmail by the caregiver; the caregiver might demand higher pay or other rewards for not revealing the illegal payment situation.
  • If the caregiver is injured on the job, he or she cannot file a personal injury disability claim without exposing the illegal payment arrangement.
  • Medicaid sees money paid to caregivers as a “gift” which, if above the annual limit established by Medicaid, may prevent the elder from qualifying for Medicaid benefits for up to five years after the time of payment.

Advantages of Hiring a Private Caregiver Legally (with a formal caregiver agreement):

  • The elder sees the value of services rendered and is less likely to take advantage of the caregiver’s kindness and generosity (especially in the case of a friend or relative serving as the caregiver).
  • The elder’s and caregiver’s roles are clearly outlined so that they fully understand their responsibilities to each other.
  • Money paid to a caregiver, even if that caregiver is a relative, may be counted as an unreimbursed medical expense for the purpose of spending down income to qualify for VA benefits.
  • Money paid to a caregiver under a caregiver agreement is not counted as a “gift” and does not risk incurring a five-year penalty period when the elder applies for Medicaid or other public benefits.

  • The caregiver builds an employment history, establishes credit, and has access to unemployment and disability insurance, workers compensation, and public benefits such as Social Security and Medicare without risk of revealing an illegal employment arrangement
  • The caregiver may qualify for the federal Earned Income Credit and, depending on total annual income, might receive a tax credit greater than his or her taxes paid.
  • Everyone enjoys peace of mind knowing that they are doing things above board and are not at risk of inviting legal problems into their lives.

Payroll services like GTM and PayCycle can help you keep you accounting above board, or we at Elder Law of East Tennessee can recommend a local service to get you started.

For more information about how to set up a Caregiver Agreement, what should be included in a Caregiver Agreement, or other details related to paying or receiving payment for private care services, get in touch with Elder Law of East Tennessee: 865-951-2410, info@elderlawetn.com.