Personal Care Contract from my elderly mother to me

[sclsn]

My 96 year old mother was living in my home in Florida where I was am her sole caretaker for the last 5 years.  This past April she fell fracturing her left hip, pelvis and elbow.  She had hip replacement surgery, they left her pelvis and elbow to heal by themselves and she was placed in a Health & Rehabilitation Center.  She did receive rehab but it has been determined by the doctors and rehab specialists she will make no further progress and will be staying in  the facility permanently.  I have engaged an Elder Care Attorney to help navigate the transition from Medicare to Medicaid.  Regarding the Personal Care Contract advised by the attorney.  This contract will enable funds to be paid to me (her daughter/POA) from her to take care of her personal needs that Medicaid does not.  My sole income is Social Security.  I need advise re:  do I need to claim this Personal Care Contract as income on my taxes?  If so can you assist me in calculating what the income tax would be for federal with the total Personal Care Contract income of approximately $55,000 lump sum this year.  Per the attorney the contract would state I will be paid $17 per hour for 3 hours per day x 6 days x 52 weeks/year x 3.18 years (per the Florida Medicaid life expectancy table.)  Let me know if there are any further questions you need answered to provide me with the guidance I seek.  Thank you.

[AdamNe]

Hello @sclsn !

Thanks for the question. 

This is an interesting tax planning scenario. I assume the goal is to pay down your mother's assets, and gifting you the $55,000 is not an option due to Medicaid regulations. 

However, the $55,000 is taxable income to you in the year it is received. In addition, your mother is required to provide a W-2 to you, and to pay the relevant Social Security and Medicare taxes on the wages. Income tax withholding is not required, but will be due by you when you file your tax return. 

The exact amount of income tax you can expect to pay depends on several factors, including the amount of SSA income you receive, your filing status, any applicable deductions and credits, etc. I would suggest using our TaxCaster and enter in all your income sources and other info. Enter the $55,000 as wages, and assume $0 in withholdings. This will give you a pretty clear idea of the tax implications of the $55,000 lump sum for you. 

As a very general rule, assuming you are a single filer,  it sounds like most of your income will be taxed at the 12% rate, so you can expect to owe between $6,000 and $8,000 in income tax. 

The most important thing to get set up right now is the employer and employee payroll tax withholdings (the Social Security and Medicare I mentioned above) so that you are compliant with IRS employment regulations. 

I hope this helps you! 

Please respond here if you have further questions. 

All my best,

Adam, EA

TurboTax Live Expert