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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121594  
Subject: Re: Medical Deduction for Caregiver Date: 9/17/2000 7:04 PM
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<<I am considering hiring a full time [24/7/365] caregiver for myself [who is a close friend of mine] because I am permanently disabled and homebound.>>

Sorry to hear about your problems. Hopefully your friend will be able to help you out considerably.

<< If I provide room and board for the caregiver and pay her a monthly salary of say $1000, will I be able to deduct these costs [the portion of which that exceeds 7.5% of my AGI] as an itemized medical deduction?>>

Very likely yes. But because of the amount of money involved, you'll want to check out IRS Publications 502, 554, and 907 where this and other medical expenses relative to disabled folks are discussed. Additionally, you'll also have to be concerned with the so-called "nanny tax" and state/federal payroll and withholding issues. For a more complete discussion of your federal payroll issues, you'll want to read IRS Publication 926.

<<Under these circumstances will I also be required to:

a) Withhold both Federal and State income taxes from her paycheck?
b) Withhold FICA taxes from her paycheck?
c) Pay the employer portion of the FICA taxes?
d) Pay Unemployment Insurance taxes or any other related employer taxes?
e) Comply with Minimum Wage Laws?>>

Likely yes on all counts. Wage laws and reporting vary from state to state, so you'll have to contact your state employment department to find out more of those qualifications. But you'll certainly be liable for federal employment taxes.

<<Although I do not feel as if I am an employer under these particular circumstances, now that I require full-time assistance in my daily living needs, I am not sure whether the IRS will view it the same way?>>

The IRS WILL view you as an employer. As it does with any other taxpayer who hires "live in" help. Again, Pub 926 will provide you with MUCH more information.

About your only way around becomming an employer would be to hire your help from a "service" that provides such individuals. You would simply pay the service a flat fee, and the service would be responsible for all of the wage and withholding issues associated with payroll. But that might not allow you to have your friend assist you. So it's a trade off that you might not want.

<<Any help and advice in this matter would be most greatly appreciated.>>

Hope this does help...
TMF Taxes
Roy
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