Assisted Living Expenses to non-US resident

[hugoschmidt]

My mom is needing assisted living.  We have a family friend who is a Mexican citizen and has a US work visa and is willing to come up for 6 months at a time as need and while the visa is valid.

If we hire her to come live with my mom to help her, I don't know how the taxes work.

Starting in 2023, she will be getting a TOTAL of $1884 per month from Social Security. She pays no taxes.

We would need to draw approximately $4000 per month from her retirement savings for this expense.  So her gross income would become $70,604.  Pretty sure that will be taxable.

Would she have to pay taxes?  Isn't the assisted living deductible?  I am pretty sure that if she where to move into a facility, it would be fully deductible, but I have no idea how it would work if we paid the person with the work visa.

[Vanessa A]

It is possible that she will have to pay taxes.  Yes, at $70,000 she would be over the limit to not have to file a return and not have to pay any taxes. 

When you say assisted living, do you mean she will be going into a facility or your friend from Mexico will be assisting her?

If your mom is going to an assisted living facility, you can claim the cos of the Assisted Living if she is going in there for medical reasons. If she is going in for personal reasons (ex. doesn't want to cook or clean, or house is too big) then only the medical portion of the bill (like med administration) would be deductible. 

If you are asking about your friend from Mexico going into stay with your mom, only the medical portion would be deductible.  So, if your friend is going to the grocery store or cleaning the house, she cannot deduct that part of the wages she pays to her. You would need to prorate the medical vs non medical.

In order to deduct the medical expenses, they would need to be in excess of 7.5% of her AGI.  Only 85% of her Social Security would be included in her taxable income.

Example.  Your mom has $24,000 in Social Security and $56,000 in retirement withdraws.  Only $20,400 (24,000x.85) would be taxable of her Social Security.  If she is single and over 65, her Standard Deduction would be $14,700.  This would be substracted from $76,400 (20,400+56,000) for an AGI of $61,700.  In this example, the first $4,627.50 would not be deductible.  Any medical expenses over that amount would be deductible. 

[hugoschmidt]

Thanks so much for the reply!

The scenario would be that the person would be coming up from Mexico.

Would the expense constitute as medical if my mom can't do these things? She can't prepare her meals, she can't dress herself, she can't remember to take her medications.  The person would be getting paid to assist her with that.

She currently has a diagnosis of Mild Cognitive Impairment. But she is just one test away from being diagnosed as having dementia and not able to care for herself.

[DaveF1006]

Yes, the expenses for services provided by a caregiver are deductible according to this Turbo Tax post. The household services may not be deductible as these are considered personal services but any activity that serves the medical needs for your mother is deductible as a medical expense. Such as ministering medications, bathing, dressing, etc. Just things like washing dishes, cooking, going to the store are not deductible. Vanessa A provided a good overview in her post on what is what isn't deductible..

Your mother would need to be qualified to be your dependent for you to claim these expenses. Read this post thoroughly because there are links in the post that reference personal services that may are may not be claimed as medical expenses.

The biggest issue is that the person providing  caregiver services would be classified as a Household employee. For Household employees, you are responsible for withholding FICA taxes and FUTA taxes.  Please read this IRS article about how to deposit and report employment taxes. Also at the end of the year, you will need to prepare a W2 for this employee reporting the wages and employment taxes that were paid during the year. The article link I provided explains how to prepare a W2 also.

@hugoschmidt

[hugoschmidt]

Thanks, Vanessa and Dave.

I am not planning on having her as a dependent (unless that is a smarter option). I just help her do her taxes with TurboTax.

I read the article, and this is what I have interpreted.

I like the example Vanessa used. So I will start there.

If we pay this person $56,000 for the year, I would have to figure out of that $56k how much is deductible (Such as administering medications, bathing, dressing, etc). Let's say it was $30k.

Since mom's AGI is $61,700, single and over 65, she would be able to deduct ($30000 - 4627.50) $25,372.50. Loosely bringing her taxable income down to (61700 - 25372.50) $36,327.50?

What about the person? She has a work visa, but no SSN or TIN. How would that work? Do I even have to? I am guessing she would have to report that as income on her end to Mexico?

[DaveF1006]

The person coming from Mexico will need to file a US tax return since she is being paid to perform a service within the United States. She would need to file as either a non-resident Alien or Resident Alien depending on how long she is in the US. This is determined by Substantial Presence Test.

Please refer to this IRS link for further details.  in addition, your Caregiver will need a ITIN or SSN to file either a non-resident or resident return. Here is an application to file for an ITIN W7. Also, you will need to withhold FICA or FUTA taxes per instructions that was given in a previous post.