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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 662
Experience:  CPA experienced in tax and financial planning
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ms. x owns her home. Her guardian hires someone through an

Customer Question

ms. x owns her home. Her guardian hires someone through an agency to live in (her husband also lives in and provides no services to the ward) and take care or her. At first, the caretaker receives a salary, etc. The guardian then speaks to someone who tells him to "use a foster care placement model". Now the caretaker and her husband are living in the ward's home; the ward is paying the property tax, all utilities except telephone. The caretaker and her husband are paying "rent" of $250/month -- market rents in the area are $1200- 1500 plus utilities). The caretaker is now claiming she is a foster care provider under section 131 - comments?
Submitted: 2 years ago.
Category: Finance
Expert:  DanielleCPA replied 2 years ago.

DMC :

Hi and welcome to Just Answer! I'm happy to help answer your Finance questions. Feel free to interject at any time if you need clarification.

DMC :

What is clear here is that the caretaker is not a foster care provider. Section 131 clearly states that the foster care payments must be made under a state-approved foster care program. Providing a caretaker for an elderly person does not fall under the section of this code. Here is a link to the code for your reference. http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._131._Certain_foster_care_payments

DMC :

I think there is some exposure for the ward in two areas.

DMC :

The first would be the payment of the caretaker. If the caretaker stopped receiving a salary (I'm assuming she had taxes taken out and received a W-2), and there was ever an IRS examination into this, the ward could be held liable for 100% of the employer portion of payroll taxes plus section 3509 penalties relating to the employee's portion of payroll taxes. These could amount to as much as 40% for FICA taxes and 3% for federal withholding. Note that if a 1099 was filed these penalties would be reduced.

DMC :

I also want to point out that if the caretaker was being paid as a 1099 and the IRS ever examined worker status, typically the IRS takes the status that in-home caretakers are household employees-regardless if there is a contract that states otherwise.

DMC :

The second area of exposure would be in the rental income received from the caretaker. First, please ensure that the $250/month rent is being reported on the ward's 1040. Second, ensure that no rental loss was taken as given the cirumstances with the below market value rent that would not correct.

DMC :

The ward would still be entitled to any other tax benefits related to the sale of the home, such as deducting her property tax on Schedule A.

DMC :

Please let me know if you have any follow-up questions. I will gladly answer them. If not, then please click the green accept button to indicate I answered your question.

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