How will paying cash for a caregiver impact future Medicaid application?

First, a tax issue in this plan: In your home caregivers are not considered contract labor under IRS rules. So whomever paying them should not issue a 1099 - Misc to show total income paid to them without any withholding. You should be paying them as an employee & with quarterly withholding. Imo that’s kinda best done by using a payroll software, like Quickbooks. Or a payroll service.

IRS (and probably your State tax authorities) have a guideline how to determine “employee” vs “contract labor”. IRS Publication 926.

Big determinants are that you or your mom as the person paying them - set their work time (in for 8AM), where they work (your moms address & which rooms) and determining their job responsibilities (so nobody else can come in and tell them “you need to go X street and help that neighbor”). Household employees / staff won’t be bringing in their own equipment or “kit” to do their job. This is another hallmark of contract labor; which oftentimes contract labor do and bill a separate kit rental for & is non taxable income.

If you do them as contract labor, maybe for this year - as it’s already Sept - it won’t matter, as $ amount low. But this is the sort of thing that will easily surface for IRS inquiry for both caregiver employee and for the household employer. You’re not a LLC or an INC and issuing out several 1099s so IRS already has your biz filing as we have to file ahead of individuals and include a copy of all those pesky 1099s.

Also you really should let homeowners insurance know that a caregiver is working in the home as a rider may be needed. Ditto for car insurance if they are going to be driving mom to healthcare appointments. You are opening yourself & mom up for a world of hurt should caregiver have a slip n fall and files a lawsuit.
You may want to set up a ride share account if you want the caregiver to accompany your mom to appointments but not drive.

Personally I would not DIY / private pay for caregivers except in the most unusual very shortest of short term circumstances. We hired agencies for post surgery times my mom needed them while she was still living in her home. Just knowing that if on a scheduled day if for whatever reason that caregiver could not make it, that the Agency made sure the shift was covered & on time was priceless.

2nd: regarding LTC Medicaid, caseworker is going to want to see documentation that moms money was properly used in her “spend down”. So you as her POA will need to keep name, dates and work schedule of caregivers and how they were paid. Things to show that the $ was not “gifting” but payment for services.

But here’s where paying someone incorrectly or under the table could be a problem for everyone in the drama. An outlier issue but it does happen: info may not just stay in caseworker folder. It likely gets input into State database. All scans & how sophisticated they read dependent on your State. Plus states do IRS match up. And all States do PARIS match. Info can red flag even prior years. If that caregiver was on any other type of benefit program, it’ll match. When they get their letter from the Match or from tax authorities (to pay taxes & penalties), they tend to also get letters from attorneys who do Labor Board & wage theft work. It’s - in my understanding - easy litigation as tax filing 100% wrong for employment status and you as the erstwhile employer more than likely didn't do or keep time cards / call sheets /scheduled lunch & time breaks, etc as required under fair labor practices, so it moves into wage theft territory. LSS you’re going to do a settlement. There is a cottage industry of attorneys who do this work & look for caregivers as clients. The employer elder owns a home (an assets) & so if it were to go to trial a judgement can be attached. Your homeowner insurance isn’t going to cover this. So hello! settlement.

Really just hire an agency.

Cash payment for caregiving is okay if you have a trustworthy person and you are trustworthy.

This means you don't try burn them on their hours or time off and that they don't have to chase you down for their pay either.
If you're paying a nice wage in cash, you'll get someone decent.
I was an in-home client caregiver for 25 years. I've taken cash hours over the years and it worked out fine.

If you are planning on paying in cash, then you should literally pay in cash.
Have the caregiver make out a hand-written time sheet of her hours and you literally hand her an envelope of cash.
Leave technology out of it because you don't want to have a record of any kind proving anyone is working.

If you paid cash for a caregiver, Medicaid will need to see where the cash came from so you will need to keep all records. Medicaid will do a 5-year look back into your mother’s assets and resources, so be prepared to send those records when they request them. The 5-year look back means that Medicaid can only ask for records within that 5-year period. However, if a red flag shows up, Medicaid will go beyond that 5-year period to investigate this red flag.

It’s a wonderful idea of yours to plan ahead for your mother’s care. There are many on this forum who have advised you not to hire an independent caregiver and to hire one through an agency, and you should heed their advice.

When it comes to Medicaid and the technicalities involved, you should seek the advice of an elder law attorney who is well versed in how Medicaid works.

I’d take Burnt Caregiver’s advice seriously.

In my opinion, private in-home caregivers are great in the short term. But if you’re planning on utilizing Medicaid in the future, it would be best in the long run to go with an agency.

I currently have 3 part time caregivers & a PT for private hire of in-home care for my 80 yr old father. I also dedicate 2 full days a week personally for his care, in addition to all transportation, most of the cooking/shopping & errands. He lives in an “independent living” condo where he pays for additional services such cleaning & meals. No AL would accept him due to being a blind diabetic requiring assistance in taking his insulin & having diet restrictions. Once he needs overnight assistance I will then move him to a Board & Care home. The current cost of his care far exceeds that of an AL/ B&C. And I’m *still* doing a huge chunk of the work.

More importantly, I am literally (not metaphorically) operating a small business for the sole purpose of allowing my father to perpetuate an illusion of living independently. I have a background in professional business & services management. Even with knowing what I’m doing, how to cover all the potential liabilities, how to train people, how to handle employees on a power trip, etc - If given an opportunity to do it over again, I’d definitely hire via an agency instead. When I did look into hiring via local agencies, I was very disappointed with the quality of both the caregivers & services. I thought hiring privately was a good solution.

While private caregivers provide a much more personalized level of care, it is not without significant risks, time consumption, & never mind the nuances within the caregiving industry that are often overlooked. For example I had to post a question here once about how one of my private-pay caregivers was demanding to be paid even though my father was admitted to a hospital for few days & there was no work for 3 days…a real eye opener as to the attempts of manipulation by my one caregiver. The other caregivers made no such demands. There are too many details in these arrangements that are contentious & can cause real problems, even with a drafted contract.

As per usual, no easy answers. It’s a difficult journey to make the best decisions for each unique situation. Best of luck!

BTW in California the Medicaid look back is over as of January 2024. Qualification will be determined by income, not assets or “spend downs”.

To me cash implies under the table, which is never OK (or wise).

Zelle is basically the same as cash, so you will paying her in cash. There will be a clear paper trail.

I would be very cautious about paying someone under the table for caregiving, IMO there is too much that can go wrong. Hire someone from an agency they will handle all the income requirements and withholdings.

Trying to save money this way rarely works out.

If you pay her more that $600 a year you will need to fill out a 1099 IRS form, she will have to pay taxes on her income. One of the copies must be sent to the IRS by you (your mother) as well.

Medicaid does not pay for AL, you better do your homework before embarking on this route.

Talking to an attorney would be very wise.

OP, if you use Zelle or Venmo, there is a "trail". If you pay her/him more than $600 in a year you will need to provide a 1099 form at the end of the year. This is what contractors need for their tax submissions. You will need it for your Mom to prove her money went to pay for care and it wasn't cash gifting. BUT many states have rules about what constitutes a contract worker, and some have even more special rules that apply specifically for caregivers. You can research this for your Mom's state of residence.

"According to the IRS, if a privately hired / independent caregiver is paid more than $2,100 per year , they are considered a household employee, not an independent contractor. "

Source: https://www.certifiedhomecareconsulting.com/are-caregivers-considered-self-employed/#:~:text=According%20to%20the%20IRS%2C%20if,employee%2C%20not%20an%20independent%20contractor.

I found the perfect caregiver for my mother and I found out I would have to become an employer in order to keep her! There's too much paperwork involved so I went with an agency. Can't get caught up in more paperwork than I already have...hers and mine.

Medicaid and the IRS are two different entities. Each have rules you will want to consider.

Do yourself and your LO a huge favor. Identify a top certified elder attorney in your area. One who has a lot of experience with Medicaid. Do this now so you have a good understanding of your options before you make mistakes or decisions that might lead you in the wrong direction. For starters, does your state even have Medicaid for ALF. Most don’t.

I used checks, private pay. My elder attorney had no problems with my method. There are many many variables to consider.

DementLaser: Cash payments to the caregiver are questionable. Also, you need to consider tax implications, which igloo572 has covered perfectly. Igloo has also covered the need for the caregiver to be on the homeowner's AND auto insurance.