Rosemarie Ventura" <rozina_076[at]sbcglobal.net> wrote:

- quote -

I hope the following information from here in wildfire Los
Angeles will help you:

Here in Los Angeles County, there is a program called IHSS
(In-Home Support Services). The program is designed to pay
for services that are provided to eligible individuals age
65 or over, or those who are blind, or disabled adults and
children, in order that they can remain safely in their own
homes rather than being placed in some sort of care center.
To be part of this program one must be on or be eligible for
SSI or the CA SSP. The care-giver can be anyone, even a
parent, spouse or child. The person being cared for is
listed on the W-2 as the employer. The employer can hire and
fire the employee. The State of CA makes the payments to
the employee. One common EIN is used for all employers. The
payments are reported as wages on a W-2. The wages are
taxable compensation (earned income) and may be used to
qualify the payee for any tax benefit that requires earned
income (EITC, IRA contribution, etc.). Almost every return I
prepared last season of this type qualified the person for
EITC. Social security and medicare taxes will be withheld
unless the employee falls under the "family" exemption for
domestic services. E.g., one spouse caring for another
spouse would be exempt from employment tax

There are also organizations that provide respite grants.
These grants are taxable self-employment income (1099-MISC
if over $600) if the money is paid directly to the
caregiver. If the caregiver is using a health agency and
the funds go directly to the health agency, then no 1099
will be issued and there is nothing to report as taxable
income.

Alan
http://taxtopics.net

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In a recent conversation two situations came up that puzzled
me. Both involved someone being paid by the state to care
for a disabled person in the home. The person contacted was
not sure how to deal with either situation. I'm also
scratching my head.

The first was a parent being paid to stay home and care for
a disabled child. The state issued a W-2 with federal
income tax withholding but no FICA. The parent wanted to
know if they could pay into social security. The closest I
could find to a reference was Pub 533 about "fee based"
state employees that were not covered under a state
retirement plan being obligated to pay SET tax. Is this
type of payment considered "fee based"? It sounds more like
"welfare reform" just recharacterized the welfare payment as
a wage since that was cheaper than paying someone else to
come watch the child while the parent worked some minimum
wage job. Does this mean the parent can now claim EIC, and
possibly additional child tax credit on these wages?

The second situation was one spouse being paid by the state
to care for the disabled spouse. That was reported on a
1099-Misc in box 6 as medical and health care payments. The
spouse has no medical training or qualifications but the
respite care is done AFAIK by a home health aide. The
1099-MISC is only for the care provided by the spouse, the
respite care is covered by Medicaid or Medicare.

For the person paid, do the Box 6 payments get treated the
same as Box 7 (Sch C, SE)? If they itemized, can the
disabled spouse count the Box 6 payments as medical expenses
(subject to the AGI percentage limitations)?

I forgot to ask who was listed as payer on the W-2 and 1099.
I just assumed the state was listed as payer.

I think both scenarios were in NY if that matters.

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