- You are breaking tax, employment (and potentially immigration) laws;
- Your homeowners’ insurance likely won’t cover a worker injured in your home;
- You lose the medical deduction for which the expense likely qualifies; and
- Payments may be considered gifts that will disqualify you from Medicaid in the future.
Paying caregivers under the table presents the same legal issues raised during the Nanny Gate scandal of the early 1990s. Generally, caregivers are treated as employees under Michigan law. Paying workers under the table violates state and federal income tax, Social Security, unemployment insurance, and workers compensation laws. See IRS Publication 926, The Household Employer’s Tax Guide.
In general, homeowner’s insurance does not cover a paid caregiver injured in your home. Assisting with an elder’s personal needs like bathing, toileting, and transferring is hard work and the potential for injury of the worker is high. The resulting liability to you and
your family could be financially devastating.
The costs of in-home care to assist with two or more activities of daily living (ADLs) is a deductible medical expense to the extent it exceeds 7.5% of adjusted gross income. The six basic ADLs are eating, toileting, transferring, bathing, dressing, and continence. Call us for a copy of our article entitled Assisted Living and Home Care Costs Deductible.