Paid from siblings to take care of parent

[JackieCPA]

Hello!

I can't find anything when I research on this specific situation that I haven't come across before.

Client quit her job, she is getting paid $4,000/month from her siblings to take care of their elderly parent that used to be in an assisted living. 

Is this money taxable? My gut says yes, but that opens up other questions like - Schedule C? Would there be any expenses that could be used on the Schedule C? 

[grandmabee]

Is she doing it in the mother's home?  Her home.  It is taxable,  should be on W-2 but I have one that does it on schedule C because her mothers lives with her.   What expenses does your client pay?

 

[Max W]

How many siblings?  If there are three, they can each gift $16000/yr to the mother and the daughter can administer it.

If there are only 2 siblings, they can gift a total of $32K and the daughter can apply for IIHS through medicaid/medical.  She would get about $12000/yr in non-taxable income.  That would only leave $4000 taxable and surely there would be enough expenses to offset this.

[Medlin Software, Dennis]

They may already know, but look into some sort of state funded caregiver payment as well.  Can be substantial, and in certain cases, tax free.

[DANRVAN]

I don't see how you can call it a gift regardless of how favorable it would be to the client.

A gift is given without the expectation of anything given back in return.  In this case siblings are paying client with expectation that she will take care of mother in return.

It sounds like she has informally or formally entered into a caregiver agreement with siblings.  "You take care of mom and we will pay your $$$$ per month".

I would not report it on Schedule C since she is not in the trade or business of being a caregiver.

If she does not have a written agreement, it might be in her best interest to get one.

[Gail in Virginia]

9 hours ago, DANRVAN said:

I would not report it on Schedule C since she is not in the trade or business of being a caregiver.

 

It sounds like she is now.  This is her sole means of support, and she quit her job to do this.  If she quit her job as a doctor because she became a lawyer, she would still be self-employed.  Either it is a gift, or it sounds like employment to me - she is exchanging her labor for their money.  Just my opinion though. I don't have a cite offhand for it. 

[DANRVAN]

55 minutes ago, Gail in Virginia said:

Just my opinion though. I don't have a cite offhand for it. 

I can see a case for SE but also a case for other income.

She did not quit her job to take up a new profession like the doctor that became a lawyer. 

She is not really working for the siblings.  They recognize her need for financial support but that does not make it employment or a business.

It is more like unemployment income since they are compensating her for wages she would have otherwise earned.

In regards to the suggestion of Max of gifting, I suppose there could also be a case for that depending on the facts.  For instance if after she quit her job and took care of mom for awhile, sibling got together and said this is not fair and voluntarily started kicking in $$$$.

 

[DANRVAN]

 

 

https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-tax

The IRS takes the position that there is not a trade or business if the taxpayer only cares for a single family member,  therefore  report as other income.

In Q-3 there is SE tax since  taxpayer "operates a sole proprietorship adult day-care business for multiple clients, including her grandmother".

 

 

[BulldogTom]

I disagree, potentially.   If the TP is using the 4K per month for home expenses (utilities, food, transportation) and some of that money is going to the benefit of the mother she is caring for, then I think it is a non-taxable event.   I think the argument can be made that all of the siblings are sharing in the support and maintenance of the mother.   The sibling who is taking care of her is giving her time and the other siblings are giving cash.   This is just family taking care of family. 

I would treat this as non-taxable.   There is a case to be made for the other siblings to take the dependency of the mother and the sibling at home with her under these circumstances.

Again, this is all predicated on the sibling in the home using that money to care for the mother and the home they live in.   If she is stashing the money for her retirement, then I think Danrvan is on the right track.

Tom
Modesto, CA

[Lee B]

Very interesting, I wonder if there are any court cases ?

[DANRVAN]

1 hour ago, BulldogTom said:

 If the TP is using the 4K per month for home expenses

Tom , the OP said paid to take care of mother and did not mention paying for her living expenses.

There is not enough info given to discuss support, caregiver's husband could be earning $xxx,xxx.

If the payments are strictly for her efforts in taking care mom, then it is not excluded under the code.

As mentioned, a written agreement would be helpful.

 

[BulldogTom]

That is why I said "potentially".   You are correct about the lack of complete details.   

The OP also said mother used to be in assisted living.   That would imply to me that the daughter brought her mother into her home, but that is just a guess.   Also guessing that the daughter probably made about 50K per year at her job that she quit, which is why the other siblings are pitching in to help her out.   Also guessing that all the siblings were paying for the assisted living and find it much cheaper to pitch in with their sister to take care of the mother.   Also guessing that all of this came about because the family is very concerned that mother will catch Covid in the assisted living facility.

I could write a whole book about my guesses on what is going on....I was just giving another point of view that might fit the true fact pattern...a fact pattern that we don't really know.

Tom
Modesto, CA

[Margaret CPA in OH]

All interesting discussion here.  I wonder if OP will respond with more facts or any additional information.  We are quite good at offering possible solutions to a sparsely described situation.  I will be very interested in the whole story and correct tax treatment, if any.  Always ready to learn more!

[JackieCPA]

I had an emergency family thing - that is why I never came back to add more details. Sorry everyone! Thanks for all the thoughts though!

She quit her job and will be doing this full time - the father will be living in her home and my client will be using the $4,000/month to cover all of his expenses. He used to live in an assisted living but they found it more cost beneficial for him to live with her and they pay the daughter. The client is single and does not have a spouse so will have no other income coming in besides the $4,000/month from her siblings. That is why I feel that gifting would be an incorrect scenario. 

So - I guess the expenses I'd be questioning is food, home expenses. Should I treat it like a daycare? 

[Sara EA]

I am so "by the book" the boss sometimes asks me for my IRS badge.  In this case, however, I'm with Max and "family helping family."  Why does everything have to have a tax consequence, and how would the IRS ever know?  Gee, when our son took a semester off from school, we charged him room and board.  I did not file a Sch E!  (I put the money in a savings account and gave it to him when he got married a few years later.  We just didn't want him to think he could live for free while he was working and not in school.)  The whole multiple support thing could be a reason when people could take dependents, but now that a parent is worth a whole $500 there's not much for the siblings to lose just by giving the money and calling it a day.  They could give some to dad and the rest to sis to come in under the gift tax limits.

[JackieCPA]

My whole nervousness about that is she will not be working any longer. That is the only income she is going to have - if she was working full time I would be in agreement about a gift. 

[Pacun]

This is what I would set up. I would ask one of my siblings to gift some money to my father by paying the rent or part of it. I would ask my other sibling to gift money to my father for food. I would ask the other to pay for medical expenses.  I doubt there will be much more money left for me and I would also welcome a gift from my siblings. My siblings can gift me money because they are not receiving anything in return... I am doing whatever I am doing for my father and he is enjoying the benefits of my care.

[Roberts]

On 6/17/2020 at 6:03 PM, Max W said:

How many siblings?  If there are three, they can each gift $16000/yr to the mother and the daughter can administer it.

If there are only 2 siblings, they can gift a total of $32K and the daughter can apply for IIHS through medicaid/medical.  She would get about $12000/yr in non-taxable income.  That would only leave $4000 taxable and surely there would be enough expenses to offset this.

This is the route I'd take. It doesn't matter that she's living off the money, many kids get money every year from their parents and essentially live off of it. I do the taxes of a few of them. (If the siblings have spouses you can give $30k per year easily)

[JackieCPA]

Thank you for the input everyone! I appreciate it!