VA Surviving spouse benefits

[cjanerun]

My mother receives VA surviving spouse aid and attendance. Her daughter cares for her and lives with her. If the daughter is paid does the daughter pay taxes on the money received? If so, what paperwork should my mother be giving her (W2)?

[Anonymous_]

I will page @Mike9241. Stay tuned.

[DaveF1006 · Accepted solution]

Yes, the daughter is obligated to report the income and pay taxes on it. There are two ways to report this income.

1. Assuming your mother is paying your daughter, she could prepare a W2 but this is a complicated process that shouldn't be pursued. because of the payroll taxes involved with the process.
2. The daughter could report this as self-employment income (even though this isn't technically a business) and pay all income and self-employment taxes. 

[ee-ea]

Veterans' benefits.

 https://www.irs.gov/publications/p525#en_US_2022_publink1000229272

Don’t include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA).  Amounts paid to veterans or their families aren't taxable.

[Anonymous]

Correct, VA benefits are not taxable to the recipient.  The daughter isn't the recipient here, she's a paid caregiver and her income from caregiving is taxable income to her. 

@ee-ea 

[ee-ea]

@Anonymous   Does tthe mother daughter situation fall under Notice 2014-7?

[Anonymous]

@ee-ea I don't believe so.  2014-7 addresses Medicaid waivers which are payments made by the state directly to the caregiver.  They aren't payments made to the person who needs the care.  It's an entirely different program and it operates differently.  

VA Aid and Attendance (or homebound benefit) is really just an increase in the VA pension benefit to the recipient based on additional criteria.  They can spend that money to pay any care provider they'd like.  The benefit isn't directly payable to the daughter.  The family member providing care isn't receiving a VA benefit or Medicaid Waiver payment, they are performing work and getting paid, and that's taxable income to the recipient.