Financial Considerations for In-Home Senior Healthcare

by: Smith and Howard

July 22, 2016

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Increasingly, seniors and their loved ones are considering in-home healthcare in place of assisted living and nursing homes facilities when medical conditions call for additional help. In fact, in-home, private-duty senior care is one of the fastest-growing segments of the care industry.

If you are weighing options for a family member, one of the first considerations is to review what their insurance covers. Many seniors can qualify for assistance through long-term care insurance plans or Veterans’ Administration programs.

The recent Department of Labor clarification on the companion care exemption, for example, has increased the costs associated with engaging an agency for certain kinds of caregivers. It is important to understand all of the options and costs before making a decision to hire a caregiver.

Independent Contractor or Employee?

It is easy to understand why many individuals consider senior caregivers to be independent contractors—after all, they are being hired for private care in the senior’s home. It would follow, then, that payroll taxes wouldn’t be an issue. However, the IRS looks at it this way—if you or another family is controlling how, when and by whom the specified work is being done, the caregiver is classified as an employee. Therefore, payroll taxes must be paid. The IRS views the misclassification of a caregiver as an individual caregiver (Form 1099 instead of Form W-2) as tax evasion.

Senior caregivers are classified as non-exempt workers under the Fair Labor Standards Act (FLSA). Families employing caregivers should be aware of the following labor laws:

  • Overtime Pay: Employees must be paid overtime for each hour over 40 in a seven-day work week. Federal law exempts live-in employees from overtime requirements, but some states have special overtime provisions for live-in workers.
  • Federal minimum wage: $7.25 per hour; many states (and some municipalities) have a minimum wage that is higher than the federal minimum wage. In these areas, employees must be paid at the higher of the rates.
  • Paid Time Off (PTO): Household employers are generally not required to provide PTO, though some states and municipalities have special requirements.
  • Workers’ Compensation: Required by many states.

In general, families should be aware that there are many state-specific nuances, including daily overtime, paid sick leave and required mileage reimbursement with which they will need to comply.

Breaks Can Offset Cost Tax Burden

As long as families are paying a caregiver legally, there are significant tax breaks they can take to offset employer payroll taxes, including:

  • Dependent Care Account (a type of Flexible Spending Account specifically for dependent care needs)
  • Dependent Care Tax Credit (IRS Form 2441)
  • Medical Flexible Spending Account (used only for medical care)
  • Medical Care Tax Deduction (itemized deduction for qualifying medical expenses)

The following rules apply:

  • Tax breaks are contingent on determining who the employer is and whether the person receiving care can be considered a qualifying dependent
  • To take advantage of dependent care tax breaks, families must pass the “work-related test,” meaning both you and your spouse must be either employed or full-time students
  • Expenses cannot be applied to multiple tax breaks

To learn about the pros and cons of long-term care insurance, read: Long-Term: Do You Feel Lucky? from Smith and Howard Wealth Management. If you or other family members need help in calculating the costs associated with in-home healthcare or complying with tax requirement, please call Smith and Howard at 404-874-6244.


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