Today TaxMama hears from Dave in Massachusetts who has this situation. “With my power of attorney, I pay my father-in-law’s care givers out of his funds. They work 10 hours a day, just about 365 days a year, since he has Alzheimer’s and diabetes. I will be filing his taxes, and plan to deduct the care giver costs. Do I need to provide the care givers with a 1099? How do I take the deductions on my father’s tax return?”
Whew, what a tough task you have. Your dad’s pretty lucky to have such a fine son.
But I need to give you some bad news. If Dad has in-home care givers that you are paying directly, rather than through an agency, they must be on payroll.
Can you still correct that for this year? Perhaps, you do have a couple of months to fix it and adjust withholding for the rest of the year. It will be expensive.
Perhaps you can issue them 1099-MISC for 2008? Then establish a payroll for 2009. I don’t know. Personally, I’d try to correct the compensation. It’s only for one year. Perhaps IRS will waive the penalties under the circumstances.
You will need to register with IRS and your State for an employer identification number for your father.
I suggest that you use a payroll service, like one of the Nanny Tax services. They are more in tune with domestic payrolls rather than business payrolls. There are a few companies in the field. Do some shopping.
Read IRS Publication 926 to learn more about how to treat household employees for tax purposes.
Now as to how to deduct the costs. You can use part of the cost towards the Form 2441 –
Dependent Care Credit. The rest of the expense can be reported on Schedule A, as medical expenses. You can include the payroll taxes as part of the costs.
And remember, you can find answers to all kinds of questions about household employees and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
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- IRS Publication 926 :: Household Employer’s Tax Guide
- IRS Form 2441 :: Child and Dependent Care Expenses (Credit)