1099-MISC for Caregiver paid by a family members irrevocable trust, how to declare the income.

[chrisbriggs3]

My 65 year old mentally disabled uncle (mothers brother) lives with me. If he did not live with me, he would be in an assisted living facility. I am not engaged in a trade or business of providing care giving services, I am just doing it because I can and he is family. He can bath himself, feed himself, dress himself, etc. The services that I provide him are driving him to and from a senior center/adult daycare 5 days a week, doing his laundry, cooking all meals, cleaning his room, making bed, etc. His father, my Grandfather, has an irrevocable trust that provides me with $50,000 per year in compensation as his Caregiver. I receive 12 monthly installments, and I am paid on a 1099-MISC under block 7, non-employee compensation. The IRS states at https://www.irs.gov/businesses/small-businesses-self-employed/family-caregivers-and-self-employment-... that I should not enter the income as self-employment income, but on line 21 of form 1040 under other income. I was told that by TurboTax that I qualify to exclude this income due to IRS notice 2014-7, and even though this notice was regarding Certain Medicaid Waiver Payments May Be Excludable From Income, the payment from the trust applies...   My questions. Am I correct that this income should not be considered self-employment income?  Am I correct that I should include the income on line 21 of form 1040?  Is TurboTax correct that I can deduct all $50,000 on line 21 as well?  Thanks in advance!

[RichardG · Accepted solution]

The income you receive from the trust as a caregiver for a family member is taxable income, but it is not subject to self-employment tax.  You should report the income on line 21 of Form 1040.  Please go to Federal Taxes>Wages & Income>Less Common Income>Miscellaneous Income>Other Reportable Income to report this income.

However, the income is not exempt from income under IRS Notice 2014-7, which addressed payments made by state Medicaid programs.  That Notice is based on Section 131 of the Internal Revenue Code, which generally exempts from gross income payments received as "qualified foster care payments."  These payments must be made for the care of a "qualified foster individual."  The Code defines a qualified foster individual as:

The term “qualified foster individual” means any individual who is living in a foster family home in which such individual was placed by—

(A)  an agency of a State or political subdivision thereof, or

(B)  a qualified foster care placement agency.

Because your uncle was not placed in your care by a government agency or qualified foster care placement agency, he is not a "qualified foster individual."  As such, your pay does not meet the definition of "qualified foster care payments" under the Internal Revenue Code.  

The income cannot be excluded from your gross income.  I apologize if you were misinformed by a TurboTax employee.

[chrisbriggs3]

Thank you for your reply. Since I provide all financial support for him via the $50,000 salary I receive, am I allowed to deduct any of these expenses associated with him living with me? I pay for everything for him...haircuts, food, transportation costs, clothing, etc

[golfandtaxes]

Are the expenses written off directly against this income or on Schedule A if the individual is a dependent or if married and individual is the spouse?

[KathrynG3]

No, cost of living expenses are not deductible expenses unless you are paying medical bills out of pocket. If you were paying  his medical expenses, these could be claimed on Schedule A. If you itemized your deductions, the medical expenses would be deductible for amounts exceeding 7.5% of your adjusted gross income.