Question: May I charge for the elder care services that I provide to my parents, and will these services be tax deductible for my parents?
Answer: In general, the answer is yes and maybe. If you are providing elder care services that word normally be paid for, you can charge a fee as well. However, whether you want to do that depends upon a number of factors, some financial, some personal. If one or both of your parents ultimately needs to apply for Medicaid, any payments made to family members will be scrutinized. The fees would have to be reasonable for the services provided (as compared to normal providers of that services who have similar qualifications), may require a comprehensive written contract setting out the terms of engagement and be documented and reasonable services given the circumstances (i.e. you cannot charge for 24 hour personal caregiving if your parents are playing tennis 3 times per week). Some states will require that you report your income from these paid services on a schedule C on your tax return.
There are also personal issues you need to work around. Are there other family members providing the care? Are they going to be compensated as well? Will they resent you being paid. How will this work within your parents’ testamentary plans? Will your payments deplete their estate causing friction among the other family members who expected to receive money but will not because your services cost your parents a substantial amount of money. How will your parents feel about that?
Tax deductibility is going to depend on if you can convince the IRS that the need for your services was a medical necessity that would qualify them as an unreimbursed medical expense. If your parents are in a nursing home, these deductions are more easily documented. For personal services provided by a family member you would need documentation from a physician that the services you are providing medically necessary in the event of an audit.
Robert M. Slutsky, Esq.
Robert Slutsky Associates
Plymouth Meeting, Pennsylvania