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BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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I am us Citizen and my parents are dependent & Permanent

Customer Question

Hello,
I am us Citizen and my parents are dependent & Permanent Resident staying with me on same house hold. My Mother is 57 year old and father is 76 years old.
I would like to get them health insurance under Obama care and so i would like them to make dependent by showing they are taking care of my child- 3 year old or house service etc.
Can I pay them some amount which make them independent and that way they can get health insurance under Obama care?
Also, How long i can do this? By doing this does my mother can earn 40 credits to get Social Security benefits in future?
Your help is really appreciated.
Submitted: 1 year ago.
Category: Tax
Expert:  Arthur Rubin replied 1 year ago.

Thank you for using Just Answer.

I'm not sure I understand your question. As Permanent Residents, they are eligible for "ObamaCare" on their own status, although you'd need a certification from Social Security that your father is not eligible for Medicare. Alternatively, you may be eligible for an ObamaCare subsidy if your income is below 400% of the poverty line for a family of 3 (or however many more of you are living in the household)

If they have no Medicare credits (due to either work in the US or through a Social Security treaty), then you would have to pay over $4000 per year for (say) your mother to earn 4 Social Security / Medicare credits, and she'd need 40 for eligibility.

If you pay them enough so that you may not claim them as dependents, (also about $4000, but calculated differently), then they might qualify for ObamaCare subsidies on their own. If recent immigrants, they might not be eligible for Medicaid, and hence perhaps not eligible for subsidies. (Failure to claim them as dependents is not good enough; you must also be ineligible.)

Customer: replied 1 year ago.
Lets Step back, I am going to explain you my concern one more time in detail.Here is my goal..
I would like to get health insurance for my parents at affordable rates and if some how they can earn their credits.I am US Citizen family of 3 ( my wife & child - 3 year) + My Parents (mother & father) green card holder currently dependent on me.Yes, They are eligible for insurance under Obama care but there premium is very high about $800/month.What I would looking as what if i make them independant by showing that my mother is taking care of my child and house and for that I am paying some sort of amount every month. (Whatever is minimum wage) and she is still staying with me. So, they can be eligible for Obama care under low income and there premium will be about $10-30/month.Can I do like this? What Are the implications? Any paper work required to do this?
Can this count towards my mothers 4 credits / year? How much she needs to pay taxes?Me and my wife both are working and making around $130k/year, hence we are getting very low credits for this.Hope you understand where i am going. Please guide me what is the best way, Does I will be paying more taxes by making them dependent and paying their taxes then saving in health care?Thanks for your time and support.
Customer: replied 1 year ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  Arthur Rubin replied 1 year ago.

For Social Security / Medicare eligiility, I forgot:

  • Payments for the services of a parent not in the son’s

    or daughter’s (the employer’s) trade or business are

    generally not subject to social security and Medicare

    taxes.

  • (from IRS Publication 15)

So this wouldn't work for future Social Security or Medicare eligibility. Sorry.

And Virginia didn't accept the Medicaid expansion, so it is likely that paying her enough to remove her as a depended ($4000) for 2015) would eliminate her eligibility for Medicaid, even if they were in the country for 5 years, making them generally eligible for Medicaid.

If you pay her enough to qualify for the Obamacare subsidy (125% of the poverty line for 1), she would almost certainly have to pay taxes (income over $10300 for 2015), but the subsidy might easily exceed the amount you pay her plus those taxes.

Assuming they are potentially eligible for medicaid (new immigrants are not eligible for 5 years), your method might work, and would produce Social Security and Medicare credits over time. You can obtain the dollar amount for a Social Security credit from Social Security; the amount for 2015 is $1,220. The exemption amount for 2015 is $4,000, and the relevant standard deduction (MFS) is $6,300. This will not work for Social Security credits, as, quoting publication 15.

  • Payments for the services of a parent not in the son’s

    or daughter’s (the employer’s) trade or business are

    generally not subject to social security and Medicare

    taxes.

If your parents file a joint return, then they are not dependents unless they would not need to pay tax filing separately, so the amount you pay can pay without their having to file a tax return. So (for 2015 numbers), you would have to pay her at least $4,880 to get the four credits, and between $4,000 and $10,300 to not be able to claim her as a dependent without her paying taxes.

It's possible that, if you pay her enough to qualify for the ObamaCare subsidy (125% of the poverty line for a 1-person household), which is more than the $10,300 figure I gave, then the net cost of taxes plus insurance for all of you may decrease.

You would need to register with the State of Virginia as a household employer, and fill out appropriate state employment forms

And finally, even if they are not dependents, your payment of their medical expenses (including insurance) are deductible as if they were your dependents. See "medical dependent" in IRS Publication 502. It sounds as if their medical expenses would exceed 10% of your AGI, making it potentially have an effect on your itemized deductions. I don know whether you itemize.

I wish I had better news.

Customer: replied 1 year ago.
Hello,
Sorry for late reply but i was trying to understand your response but still have some confusion.1) According to Publication 15, If i pay my mother more then $4000, will this be count towards social security credits?2) I am currently claiming my mother and father as my dependent, how much i will be loosing by not claiming them as dependent any more?3) If i pay my mother to get qualify for obama care (above $10,300), when they file tax return what they show as their income coming from? Do I need to give any documents /form to them like w2?4) If my parents loose medicaid, do they ever get eligible in future if their income goes below $4000.5) Do I get any tax credit by paying my mother for child care?Thanks for your time and support. I really Appreciate your response.
Customer: replied 1 year ago.
Hello,I am US Citizen filing married jointly, both working. I have my mother and father green card holder arrived on 08/2012. I would like to show that my mother is taking care of my child and house and for that I am paying her, so she can file own tax return and get health care under Obama care.What documents i need to file/create to achieve this?
Any document I need to create when I pay her?
What document my mother can give to show her income?
When my my mother files tax return what document she needs?
Will this money count towards Social Security Credits, If Yes how much she can get SS benefits after 40 credits?
Do I get any tax credit for this?
Can I use FSA Dependant account to make this payment?Your help is really appreciated.ThanksRishi
Expert:  BK-CPA replied 1 year ago.

Hello and thank you for your question.

I am a different expert and I would like to clear up a few things.

1) Wages you pay to a parent will not be subject to social security or Medicare taxes under your circumstances. This is because, before you include wages paid to a parent as a household employee are subject to social sercurity and Medicare taxes, you must meet two qualifications. The first you meet, which is that your mother would be caring for a child under the age of 18. The second you do not meet, which is that you must be divorced or unmarried, a widower, or your spouse must be disabled (I assume your spouse is not disabled). See Page 5 of the following Publication for more information: https://www.irs.gov/pub/irs-pdf/p926.pdf

2) Yes, you could pay your mother enough to make it so she is not your dependent and qualify to purchase a policy on her own through the Marketplace assuming she meets any other criteria aside from income for doing so. Your mother is probably eligible for Medicaid at this point though too, so look into that before you go purchasing insurance through the Marketplace: http://obamacarefacts.com/obamacare-immigrants/

"For Medicaid and CHIP, certain “lawfully present” aliens no longer face key welfare reform provisions, such as sufficient immigrant sponsor income or a five-year wait."

3) I assume the best method for you is probably to get Medicaid, but assuming she really can't get it and you pay her enough to go through the exchange, then you should note the following:

a) You may generally use your FSA account and/or claim a credit for child and dependent care expenses under this scenario (IRC 21), noting your parent is not a disqualified related person per the example in Reg Sec. 1.21-4(c):

Example 1. During 2007, X pays $5,000 to her mother for the care of X's 5-year old child who is a qualifying individual. The expenses otherwise qualify as employment-related expenses. X's mother is not her dependent. X may take into account under section 21 the amounts paid to her mother for the care of X's child.

b) You would lose the ability to claim your mother as a dependent (IRC 152(d)), which would generally cost you about $1,000 in taxes, though it's impossible to say without all the specifics.

c) You have no federal employment tax filing obligation unless you withhold federal income tax from your mother's pay. If you do withhold income tax, which I don't suggest, then file Schedule H with your Form 1040.

d) You would not supply your mother with a Form W2 at year end (Per IRS Pub 926, p 10), unless you withhold federal income taxes.

e) Your mom must file Form 1040 and report on line 7 the wages that she received from you despite having no W2 (so be prepared for your tax software to get "fussy" on you).

f) For your mother to get a premium tax credit as you desire, she must file a joint return (IRC 36B(c)(1)(C)), but you cannot claim your father as a dependent if he files jointly with your mother (IRC 152(b)(2)), so be prepared to lose that exemption too (which will cost you roughly another $1,000 in tax). Note - There is an exception that allows you to claim as a dependent a married taxpayer filing a joint return solely as a claim for refund, but the Code only acknowledges this for qualifying children (IRC 152(c)(1)(E)), not parents, even if the IRS may acknowledge it for parents too as an administrative election (see pub link below - joint return test), so try to claim your father as a dependent after he files a joint return with your mother at your own risk. It's unclear how this might be interpreted at this point and the IRS may get tripped up over it. https://www.irs.gov/publications/p17/ch03.html#en_US_2014_publink1000170864

g) Register for and pay any applicable State employment taxes (see both links, one is for withholding and the other unemployment):

http://www.tax.virginia.gov/content/household-employer

http://www.vec.virginia.gov/employers/account-number

I hope this information is helpful and clears things up. A positive rating is appreciated (time spent to answer your questions with proper citations = about 1.25 hrs, my normal hourly rate = $150, so Happy Holidays!). I hope you find this fair, but for further clarification, please be prepared to accept an additional services request at my normal hourly rate given the amount of time I've put into this already. Again, thank you for your question.

Customer: replied 1 year ago.
Thanks for your response. It was good information though, but you did not mention anything about Virginia Tax.a) Do my mother as employee need to pay VA income Tax?
b) As a employer, Do I need to withhold VA Income Tax?Thanks