LTC payments

[artp]

Client’s elderly mother who still resides in her home has a chronic illness which requires 24-hr care year- round. She has a qualified LTC contract and received a 1009-LTC for $ 54,092 in 2011. The client and his sister are the appointed guardians for the mother and manage her financials affairs. The children have several individual caregivers (not related) who provide the care. The children fill out the paper work for the monthly claims to the insurance provider. The LTC checks are made payable to the mother; they do not go directly to the caregivers. The children then write checks to the caregivers from the mother’s checking account to pay them for their services. The total amount paid out to the caregivers was $ 68,024 in 2011. This arrangement has been on-going since 2009. The insurance coverage will run out in April 2012.

Question: Are the caregivers considered employees of the children and would the payments to them be considered taxable wages? Are the children (or the mother) liable for FICA tax and Fed/State W/H? No 1099s or W-2s have been issued for any years.

The children say no based on the following statement from the insurance company:

”Your long-term care insurance contract provides only for reimbursement of qualified long-term care expenses. All benefits paid to reimburse you for such expenses are non-taxable, whether paid to you or to a care provider on your behalf”

I am very concerned about the situation both for me as preparer and for the mother and children. I was under the impression that the mother was receiving care in an assisted living facility. I was unaware of the arrangement as outlined above until he dropped off the tax information for himself and his mother last night.

Art

[michaelmars]

the insurance reim is just that, a reimbursement. enter the expenses on sch A then see line 16 of the medical worksheet to record the reimbursemnt. The care givers are not employees of the children, if anything they are employees of the Mom but more info is needed such as are they paid directly or through an agency?

[KEYWEST_RICKS]

i think this would go on the second page of 8853.

[grandmabee]

I think they are houshold employees of the mother and W-2's should be filed and payroll taxes. Do they go to mothers house and take care of her? And you are paying them. Why wouldn't they be employess unless you are paying thru an agency... sounds like you pay the caregivers directly... unless they are in the business of providing care but they would have had to follow all local business laws ( lic,insur,etc.) then could possiblely be 1099's

[artp]

the insurance reim is just that, a reimbursement. enter the expenses on sch A then see line 16 of the medical worksheet to record the reimbursemnt. The care givers are not employees of the children, if anything they are employees of the Mom but more info is needed such as are they paid directly or through an agency?

The caregivers (individuals) were paid directly from the mother's checking account which the children control. The payments from the insurance company are based on the claim forms that the children file with the insurance company which show the names of the providers, address,ect and the hours they worked and the amount they are paid. The payments from the insurance company and payments to the providers will be reported on the 8853.

I think that part is OK. My concern is any filing requirements and possible payroll tax issues (for the children or the mother) with respect to the amounts that are paid to the caregivers. My only experience has been where the insured is getting care at a nurshing home or assisted living facility and the payments have gone directly to the facility providing the care or the insured receives the payments from the insurance company and uses those funds to pay qualified expenses billed to the insured from the care facility.

[michaelmars]

8853 ONLY APPlies if they are under the type of insurance where they get a daily rate regardless of actual expenses. the way you stated the above, they are reimbursed for actual expenses thus no 8853.

i would file payroll returns for the mom. she is the one paying them and getting reimbursed etc. doesn't matter that the kids are actually writing the checks.

[artp]

Thanks for all of the replies.