Friday, October 14, 2016
One of the big desires of older farm couples or surviving spouses is to stay in the farm home as long as possible. I had a call not long ago from a farmer’s son who was asking about legal and tax issues associated with in-home care for his father. The son, who was farming the family operation, was 75 and his father was 98. The father didn’t want to leave the homestead and go to a nursing home. He wanted to stay involved in providing input in farming decisions. However, the son knew that his father’s care was getting to be just about too much to handle for he and his wife (who were both in their mid-70s). He clearly understood his father’s desire to physically stay in the farm home, but was struggling with the realities of the level of care that his father needed. He was also concerned about the cost of nursing home care (which can often exceed $70,000 annually). So, he was checking into in-home care. It became apparent after talking with him for a while that he wasn’t talking about hiring someone to come in for an hour or so on a daily basis. His father was in need of care all day long, as well as through the night. He said that he had a sister that was licensed as a nurse and was willing to leave her current nursing job to take care of their father if they could work out an arrangement.
In today’s blog post, I examine a few of the things I mentioned over the phone that day, and throw in a few additional items I didn’t address in that phone conversation.
The sister’s willingness to take care of their father is certainly noble. But, what are the issues surrounding her hiring as the caregiver? Perhaps the starting point when employing a senior caregiver are the rules governing a household employer. It’s a different ballgame in many respects from being an employer in a commercial business setting. What you get into are the rules surrounding household employer obligations, worker classification, gross/net pay, and overtime. In addition, the IRS and the applicable state tax folks also get involved.
So what do you need to do when you hire a caregiver as an employee? For starters, you will have to register for federal and state taxpayer identification numbers. Once you have the federal number, then you can apply for the state number that you will need to properly deal with state unemployment insurance taxes and (in most states) state income tax. There probably is also a report that has to be filed with the state concerning the new hire. The state will use that report in tracking employment numbers. You will also have to set up a payroll so that FICA tax can be properly withheld and, perhaps, income tax. In some states, you have to provide details with respect to each payment concerning the number of hours worked and whether there was any overtime. Also, since you are now an employer, you will have to make sure that state tax returns are filed and that you remit the employer and employee taxes. The same goes for federal tax returns although the federal employment taxes are paid a bit differently. In addition, year-end tax documents will have to be prepared. Keep in mind, calculating payroll tax can get confusing when the caregiver stays around-the-clock. In that case, federal law says that up to eight hours can be treated as sleeping time (non-compensable). But, to get that treatment, the caregiver has to agree to the arrangement in writing and a place to sleep must be provided and the caregiver must get at least 5 straight hours of sleep without interruption.
Schedule H (Form 1040) must be filed if you pay any one household employee cash wages of $1,900 or more (in 2015), or withheld federal income tax for the year for any household employee, or paid total cash wages of $1,000 or more in any calendar quarter to all household employees.
As for overtime, a household employee has to be paid overtime if they work over 40 hours in a 7-day week. “Companion care” hours don’t count, just those hours devoted to household or medical work. So, time spent playing a mean game of Chinese checkers with the person being cared for doesn’t count toward overtime hours. On this point, starting in 2015, a caregiver that works for a third-party company does get overtime. But, in the situation I was presented with by the caller, his sister wouldn’t get overtime pay for the “companion care” hours.
A good IRS publication to review is Pub. 503 (Child and Dependent Care Expenses). In Pub. 503, you can read about the adult child (as the employer) being able to take a deduction for dependent care expenses (assuming that the parent is a “qualified person”). Also, in Pub. 502, there is an explanation of the medical care tax deduction. There also might be the chance to pay for medical care with pre-tax dollars via a flex-spending account. But, to be able to do that, numerous hurdles must be cleared.
As you can see, this can get complex quickly. But, with appropriate planning and the use of tax and legal professionals, it just might be possible to allow a senior member of the farm family to stay in the farm home longer. For some, it might just be worth the additional hassle. That’s especially true, if long-term care planning has not been engaged in advance of the need to enter a nursing home. Also, it’s been suggested to me that in the farm context, some people treat in-home care providers as farm employees. That might be reasonable if the farm is incorporated and the farm owns the house. On this note, it might be plausible to argue that it is necessary for the elderly parent to remain in the home to provide a presence on the farm around-the-clock to deter vandals and thieves, and to keep an eye on the animals and call for help if they get out of their enclosures.
I also suspect that tax reporting in the caregiver arena is not done appropriately in a good proportion of instances. I don’t know for sure. That’s just my suspicion.
In any event, incorporating long-term care planning into an overall estate plan is an excellent idea. Related to that, acquiring long-term care insurance might be an appropriate step for some. The problem with long-term care insurance, however, is that those that can afford it don’t need it and those that need it can’t afford it!
I am not sure what the caller did after we hung-up that day. I haven’t heard back. Hopefully, I was able to provide some food for thought and not simply confuse the issue and scare him away from investigating further. Also, I hope that his father is still on the farm and enjoying the sights and sounds of another fall harvest.