A client, retired health care aid, will be taking care of her father and will be paid from her father's income for his care in her home - $2,000. per month. Would I report this on line 21, or use sch C or consider it a gift
If the $2,000 is being paid in exchange for services, it would go on schedule C. For the $2,000 to be a gift, there would be no expectation of receiving services in return.
This is not a gift as payment was made in exchange for services. A father can hire an offspring in his candy shop and payment will be made and properly accounted for as regular wages.
The daughter is providing medical care based on her training which is a trade.
Line 21 as "Other income" What else the daughter does for a living and would report as income on line 7?
Schedule C.
The main purposes of schedules C is to match revenues with qualified and relevant expenses in an income producing activity that is not a corporation, nor a partnership....... but a sole proprietorship or equivalent.
Finally, what type of reporting is that income subject to? 1099 ?( most likely) or W-2?
It is payment for services, therefore subject to Social Security tax. I must be reported on either a W-2 or Sch C. Since the care is in her home, I would opt for Sch C and take a percentage of home expenses as a deduction, like a daycare facility.
Thank you Irmn, Tijean, and Charlotte. Another daughter has control of the father's finances, so I will advise reporting on a 1099 and the cost of food, his share of utilities, rent, possibly mileage for his medical care, to be deducted on Sch C - similar to deductions at a child care facility.
I would think that, if she's caring for him in her home, it shouldn't be too difficult to come with legitimate deductions to offset most or all of the income.
It is very important to know if she is taking care of him in her home or in his home.
Dusty
Dusty - Glossy said her home so I think Archie is correct about being able to come up with expenses to offset a good portion of the income.
IRMN:
Ok - now you expect me to read the whole question? What is next - you expect me to find on my own answers on www.irs.gov?
Dusty
Dusty - All I want to know is where Charles found the 2011 package. I've looked but I can't find it anywhere. Do you have any ideas?
IRMN:
I don't know - but maybe if we marked it solved we could find it.
Dusty
I'll let you do that. I seem to recall he got a bit perturbed at me awhile back when I briefly brought up that topic on another one of his posts.
There may be some facts and circumstances missing, and this may be an unpopular answer, but wouldn't the daughter be a household employee in this circumstance?
I'm not saying you can't end up with a Sch C but there are definitely hoops to jump through starting at the local level with city/county/state (non-tax) regulations on operating a care facility in your home.
Rick
Hey Rick, nice to see you again! I was also wondering about the household employee situation. What gives it a twist is that it's in the daughter's home.
Rick - Did someone pay ransom for your release or did you manage to escape the Somali pirates on your own ------------------------------- it's been awhile, nice to see you back.
Rick - I also thought of the possibility of a household employee but I thought the first hurdle was to get away from the gifting idea. Besides, if the father is living with the daughter, does he have a household in which an employee could be employed?
I escaped on my own. Headed back out to sea again in two weeks. Crossed spam and pop tarts off the packing list since those are apparently provided if the engine room catches on fire but added extra flashlights and batteries just to be on the safe side. And maybe a crow bar, not sure how those electronic door locks work without power...
More seriously (although I am going on a cruise soon), most of my tax prep ends on 4/15 so the forum has been out-of-sight, out-of-mind although I have been checking back from time to time.
I think being in the daughter's home creates more problems than it solves. If daughter moves in with father then care is provided in his home, no problem (she may still need some sort of local license as a care provider to get Schedule C treatment). In her home there are generally all sorts of regulations on managed care (varies widely by location) which may include licensing, inspection, health dept requirements regarding food prep, etc. There may or may not be an exception for related parties depending on where you live. Again, not enough facts and circumstances presented in this case, You may also want to/be able to characterize a portion of the payment as rent income and escape FICA/SE tax.
Bottom line, be prepared to present documentation to support the income and deductions on the daughter's return as well as any sort of medical deduction on the father's return.
Rick
Rick, you are complicating this issue far too much. The original question states that she will care for her father in her home. She is not a household employee because she is not doing the work in her father's home. She will definitely have additional expenses for utilities and food and possibly for medicines and medical supplies. She simply treats the income the same as if it were daycare for grandchildren, The licensing you refer to are local issues, are not usually required when caring for relatives, and have absolutely nothing to do with reporting income for income tax purposes.
Sch C is the most reasonable way to handle the issue. The payer does not need to go through all that is required to withhold taxes, and the caretaker's expenses are deducted directly from her income instead of being simply itemized deductions subject to the 2% reduction.
". . . she is not doing the work in her father's home."
The facts presented do not specify one way or another. I suspect she is, in fact, doing the work in her father's "home." Home is where you live regardless of who owns the property. If she's driving dad home at night, putting him to bed and then picking him up the next morning then I agree it's a different situation. If dad's sleeping in her spare bedroom then she is providing services to him in his home.
Without lots more facts I don't think it's definitive one way or another but since nobody else mentioned it, I wanted the original poster to be aware that there may be a household employment tax issue here.
Rick
Her father has dementia, and was in a nursing home as a private pay patient. She has always worked as a health care aid, has the experience and she was willing to care for him in her home and be paid to do so for much less than the nursing home charged I think, in NY State, licensing is not required under these circumstances, but I will check. I appreciate everyone's input.
I vote that you have a good argument for no SE tax.
Steele v. Commissioner, TC Summ Op 2009-05
