Medical Insurance for Mom as a Household Employee

[sea-wa-rabbit]

I am trying to understand whether this is a shady practice or just OK as it is within the realms of the current IRS law (IRS pub 926). My mother who is diagnosed with rare cancer is moving to US as a lawful resident. Now I am trying to figure out how can I get her medical insurance so she can get care in US. I live in WA state where there is a five year bar for new lawful resident to get medicaid (Apple Health).

So then how about this, I do expect my mom to live with me, also help in housekeeping and cooking etc. Then why don't I pay here about $20000 annually. This will kick her annual earning just above federal poverty level and qualify her for low cost insurance via premium tax credits through the Insurance Marketplace.

This is borderline shady as she will end up paying say $2000-$2500 in federal tax with no social sec tax and medicare tax as I am married with no kids (per IRS pub 926). But she will end up getting $11,000 give or take in premium tax credits.

She will live at the same place as mine, She may choose to contribute from her salary in living expenses of the same household I am in too. Is this legal or shady ?

[Vanessa A]

This is one of those things where you may get different answers based on who is answering.  However, this is more on the shady side.  Is it a possible loophole that you could get away with?  Yes. Is your mother truly going to be your employee?  If not, and you would be audited, you could end up in trouble for tax fraud. 

It sounds like she will not have income.  If she doesn't and she is your dependent, then you could possibly get insurance through the marketplace without the premium tax credit.  This would remove the potential for the situation to seem fraudulent. 

[sea-wa-rabbit]

So this is again a grey area. I do expect her to contribute to household work like cooking and cleaning. So is that OK ? also Is this tax fraud or employment/benefits fraud ? As technically I paid the tax to IRS per pub 926

[ColeenD3]

The shady part is that you aren't hiring a housekeeper because you want a housekeeper. Your intention is to provide your mother will health insurance and you are trying to finagle a way to do it. As @VanessaA said, you might get away with it. The fact that that sentence has to be included shows that it is shady.

[AmeliesUncle]

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@sea-wa-rabbit wrote:

Then why don't I pay here about $20000 annually.

She may choose to contribute from her salary in living expenses of the same household I am in too. 

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Is that wage Fair Market Value for the amount of work that she will do?  If not, it would likely be an illegal "step transaction".

Is her contributing her salary part of the agreement (either required or implied)? If so, that would be an illegal "step transaction".

[sea-wa-rabbit]

well how about part-time with at or around minimum wage pay, I will be paying from my own salary. will need a CPA to structure this. 

[AmyC]

The IRS does understand a parent helping out and you paying her. That is why there is no Medicare or Social Security tax. If she did not live in your home, you could even pay those taxes for her to acquire credits. You will want to talk to family members and see what makes sense for your family and the law.

See Publication 926, Household Employer's Tax Guide

[parentshealthcare]

So what was your final decision? I have the same question and want to make sure that I do this within the legal system. It is confusing and any help is appreciated. 

[RobertB4444]

If you read that publication that @AmyC posted a link to you will find that it is perfectly legal to pay your parent for child care and to help you with things.  And that you don't even have to withhold social security or medicare if you do it.  But doing it just so your parent can get health insurance is not a legitimate transaction and could get you in a lot of trouble if you were caught.

You would be a lot better off moving your parent into your home and declaring them as your dependent and adding them to your health insurance policy.  No need to be shady or jump through any weird hoops that way.

@parentshealthcare