Tax Implications of Family In-Home Care
About half of all adult Americans are part of the “Sandwich Generation.” So called because a parent or a child has moved back into their home. The additional costs of these move-backs places a lot of financial and time pressure on adults who must also earn a living. The result is a need for in-home care provided by relatives or home care businesses.

You can be paid by a State agency to provide care for an elder or to provide care of your relative’s children so that they may work. This is income reported on your tax return but it is not subject to the 15.3% self-employment tax because you are not engaged in a business of providing such care. You can even provide in-home care to unrelated persons without rising to the level of a trade or business subject to SE tax.

If you hire a caregiver, the first question may be “Is the caregiver my employee?” The answer to this question determines the reporting requirements to state and federal tax authorities. It is not a clear cut decision process but depends on facts and circumstances. There have been a large number of court cases defining what simple words like “employ” and “worker” mean for labor laws and tax laws.
In general, caregivers do not satisfy the requirements of special skill, independence from control and permanency to rise to the level of an employee. In addition, hiring an individual to provide such care does not rise your involvement to the level of operating a business of home care. Hence, you do not have to report the caregiver to EDD; you do not have to collect FICA and other taxes from their payments; you do not have to file a 1099-MISC reporting their income.

For your own protection, however, you should ensure that the individual is eligible to work in the USA. The caregiver should present a social security card that is not restricted. Keep a copy.