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The Tax Ramifications of In-Home Medical Care

Taking care of an elderly or infirm family member in one’s own home can be a tremendous demonstration of love. However, this decision involves a lot more than simply having an extra bedroom available. Often, it is a round-the-clock endeavor. Many infirm or elderly patients require specialized care, and this level of caregiving is often not possible for many busy families. Hiring a part-time or live-in employee to care for the patient can often solve these tough situations.

The cost of in-home caregiving services can be tax deductible, but only services directly pertaining to the care of the individual, such as bathing, feeding, dressing, and administering medication, are considered deductible medical expenses. Other parts of the employee’s job, such as housekeeping, are not deductible. Therefore, if some non-medical services partially comprise the employee’s agreed-upon duties, medical services must be tracked separately so the deductible expenses are allocated correctly.

Hiring a household employee also comes with a variety of tax-related obligations. Employees hired by a family to care for their loved one must be issued a W-2 by the household (the employer). The employer must also possess a Federal Employer ID number and state ID number, and handle all responsibilities pertaining to an employee’s payroll taxes, Medicare taxes, and Social Security withholdings. Special rules apply to household employers and their employees to simplify payroll withholding and reporting requirements as well as payment of the payroll taxes themselves.

Meeting with the tax experts at Taxation Solutions, Inc. to set up a household payroll system can help you (and your in-home caregiver) avoid tax-time headaches. It can also help make sure you're accurately deducting in-home medical care services to reduce your overall taxes. Don’t struggle through dozens of forms and hope that you’re calculating deductible expenses and withholdings properly. Our team can help make sure everything is handled correctly!