Provide some details. Who would be paying your daughter? Would Grandma pay her? You? Or are you asking if your daughter can be paid by some other party or source?
In general, there is a way to get Medicare to pay a relative as a caregiver, because it keeps the patient out of a nursing home. However, I don't know anything about how to get on the program. I would start by contacting your local chapter of the Alzheimers's Association and see if they have resources or a social worker they can recommend who knows about the programs.
It's a MEDICAID (not Medicare) program, and there are income/asset limits.
Her grand-mother gets a social security check and she would be paid out of that.
You really want to talk to an informed social worker or elder law attorney, for many reasons. For example, does someone have a durable power of attorney for the grandmother? Eventually, she will not be competent to make decisions, and if you wait to get the POA, she won't be competent to sign it at that time and it won't be valid. Have you taken steps to protect her assets (retirement accounts, home, other property?) The IRS has a separate form to designate a representative to handle tax matters, you can use a POA, but it it simpler to get the IRS form signed instead or in addition to a POA.
Regarding household employees, in the general situation, if grandmother hires granddaughter to do work around the house, including as a caretaker (medical care, light house work, companionship and safety) then the grandmother must issue a W-2 to the granddaughter. The grandmother must also withhold and pay household employer's tax, which is a version of social security and medicare tax that would be withheld from a "regular" job.
When the employee is a parent or child of the employer, household employee tax does not have to be collected, but that privilege is not extended to grandparents and grandchildren.
Here is more important information for caregivers.
There are some specific exceptions to the requirement to pay household employer tax when the employee is a caregiver for an elderly or disabled person, but I am not familiar with them. There are also federal and state programs that will pay caregivers so that the patient does not have to go to a (much more expensive) nursing home situation. It may not be necessary for the grandmother to pay the granddaughter from her social security, and you should really investigate your options before going in too deep.
You have not mentioned what state you are in. It is possible that there could be a free elder law service that could give you some legal advice about this. Google free legal advice for seniors. I say this because I am currently helping a family member in the state of Ohio and have had some excellent free legal advice/help from a group there. I found them through a link on a Medicaid pamphlet, and they have been very helpful. Many elder law groups will also provide at least one free consultation---which will at least point you in the right direction to sort out the issues you are struggling with. Best of luck to you---this is a tough situation.
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