How to get financial help for taking care of Mom, Dad

by: Cynthia Ramnarace | from: AARP Bulletin | Updated December 15, 2011

Imagine that you could get compensated for driving Mom to the doctor, helping her get dressed and administering medications.

In some places, and in some cases, you can. Here are ways your commitment to Mom and Dad can result in more money in your pocket — either from direct cash payments or federal income tax breaks.

Federal cash benefits

Most states offer programs that use a Medicaid waiver to allow direct federal payments to family caregivers for their services. But this means, in most cases, that only care recipients whose income is low enough for Medicaid status qualify.

In New York and California, for example, the care recipient must apply for and be granted admission to a personal assistance program. The number of hours of care covered will be determined by a caseworker. The care recipient is then in charge of recruiting, hiring, training and firing the personal assistant. Payment comes directly from the state.

Eligibility rules and program setup vary by state; for more information on services in your area, contact the National Resource Center for Participant-Directed Services.

These programs, which aim to keep people living independently and address home health aide shortages in rural areas, are far from comprehensive. And they “are in some distress now because of budget cuts in all of the states,” says Howard Gleckman, a resident fellow at the Urban Institute. “But they’re there, so there’s at least a chance you can use some of that money to pay a relative for your care.”

Direct private pay

Your parents could pay you directly for hours spent helping them with domestic, personal care and medical-related duties. “This is becoming increasingly commonplace,” says Gleckman. “But if you do this, it’s very important you have a caregiver contract in place.”

A caregiver agreement proves that a parent is paying for a service and not giving a gift. A history of cash gifts can disqualify your parent for future Medicaid enrollment, which pays nursing home fees for those who cannot afford them.

If you do decide to enter a private pay relationship, you must:

  • Pay tax on your earnings, and your parents must report the payment on their income tax forms.
  • Make your hourly rate in line with the national average pay rate for home health aides, which is about $10 an hour. “You can’t pay your niece $200 an hour to take care of you as a way to spend down your assets in order to become eligible for Medicaid,” says Gleckman.

You might be tempted to just accept payment off the books from your parents, but that is risky, says Gleckman, because of the Medicaid issue. Cash-strapped states are being very strict in determining eligibility, and they can request five years of bank account and tax records. “If your parent has a regular withdrawal of $1,000 a month, for instance, they’re going to ask about that,” Gleckman says.

Next: Check your parents’ insurance policy for cash benefits. >>

Long-term care insurance

Check your parents’ long-term care insurance policy. Some plans, although not many, offer a cash benefit that allows the policyholder to spend a certain amount of money each month on in-home assistance, says Gleckman. “These policies are very expensive, and most carriers won’t even sell them because the possibility for fraud is so high,” says Gleckman. “But there are a few policies out there that do this.”

Dependent tax exemptions

If you are caring for a relative but none of the direct pay options fits your situation, consider whether you qualify for claiming your parent as a dependent on your income tax return. Your parent doesn’t need to live with you, says Melissa Labant, technical manager of the American Institute of CPAs. But you do have to provide more than 50 percent of Mom or Dad’s basic living expenses, including housing, food, clothing and other necessities. “So perhaps they have their own apartment, but you pay the rent,” says Labant. “Or they can be living in assisted living, and you help pay for that.”

The exemption is the same as what you’d get for one of your kids: $3,700 for the 2011 tax year for each care recipient. But here’s the caveat: Your parent’s earnings, excluding Social Security, cannot exceed the deduction amount, in this case $3,700. So if your mom’s pension or investment income totals more than that amount, you cannot claim your parent.

If you are not married and your parent qualifies as a dependent, you can also save on your taxes by filing as head of household. “It’s a more favorable tax filing status than single and makes people eligible for lower tax rates, more credits and sometimes more tax breaks,” says Labant.

Deductible medical expenses

Did you pay to build a wheelchair ramp on your parents’ home? Do you use your vehicle to drive them to medical appointments? These costs are deductible on your return, says Labant, as long as the cost exceeds 7.5 percent (for 2011) of your gross adjusted income. (That bar rises to 10 percent in 2013.) This is the case even if your parents don’t qualify as dependents, as long as you are paying more than 50 percent of their medical fees.

Also of interest: Balancing work and caregiving. >>

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