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?”
Hi Dave,
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.
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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?
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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.
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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.
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Do some shopping.
Read IRS Publication 926 to learn more about how to treat household employees for tax purposes.
https://www.irs.gov/publications/p926/index.html
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.
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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)
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