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Caregiver contracts

Somewhere in the second year, many families do the same math at the kitchen table. The care would cost $25 an hour or more from an agency. The child giving the care has cut their work hours to do it. The parent has some savings and wants to pay something. Every instinct says keep it casual. The reason not to is what happens if the parent later needs Medicaid to pay for long-term care.

Why paying with nothing in writing is a risk

Federal rules set a penalty when a person gives things away, or sells them for less than they are worth, during the look-back period for Medicaid that pays for care in a facility or through some waiver programs. The length of the penalty is the amount given divided by the average monthly cost of nursing home care in the state or area.[2] How it works is on the look-back page.

So when $1,500 a month moves from a parent to a child, a caseworker can ask: was that pay for work, or a gift? A written agreement, a fair local rate and records are how a family answers. Without them, the answer has to be pieced together years later from a bank statement.

An earlier version of this page said Medicaid assumes family care is free, that every dollar is treated as a gift, and that a contract written after the fact generally does not fix it. We could not find a federal source for any of those as stated rules, so we took them out. What is true is narrower, and still worth acting on. Each state treats this differently. It comes down to fair value for the work. And it is much easier to keep records going forward than to rebuild them looking back.

What a personal care agreement includes

AARP says to write up a personal care agreement between the caregiver and the person getting care. It should spell out the pay, the services, and when they will be given. AARP also says to have an elder-law attorney check that it meets the tax rules.[1] In practice that means:

  • Exact services in writing: personal care, meals, rides, managing medicines, housework. Not "help as needed."
  • Hours and a schedule, and what happens when the caregiver is sick or away. A real agreement plans for breaks.
  • A rate you can back up with what agencies and private aides charge where you live. Keep the quotes or ads you based it on.
  • Payment as the work is done, on a regular schedule, not one big payment for care already given.
  • Records: timesheets, invoices, and payments by check or bank transfer that match the agreement. Lodestone's free care log worksheet covers the daily-record half of this.

Have an attorney write it. Don't just download one. Medicaid treats these differently in each state, and the whole arrangement rests on this one paper.

The tax side, with the 2026 numbers

AARP says it plainly: caregivers are required by law to report the pay as taxable income.[1] Beyond that, paying a caregiver in the home can make the person who pays a "household employer," which comes with its own duties. IRS Publication 926 for 2026 sets the dollar limits:[3]

  • Social Security and Medicare taxes must be held back and paid if you pay any one household worker $3,000 or more in cash wages in 2026. For 2026, Social Security tax applies to the first $184,500 of pay.
  • Federal unemployment tax is owed if you pay household workers $1,000 or more in any three-month quarter of the year. It applies to the first $7,000 paid to each worker each year. These are two separate tests, and mixing them up is a common mistake.
  • Family exceptions matter, and they work in both directions. Pay to your spouse, to your own child under 21, or to your own parent is generally left out of these limits, with a few exceptions. So a parent paying a grown son or daughter aged 21 or over generally does count. A grown child paying their parent for care generally does not. Which way the money moves changes the answer.

Pay that is reported also builds the caregiver's own Social Security record. That is one of the things stepping back from work wears away. The tax rules depend on who is the employer, where the work is done, how the two people are related, and their ages. So use the current IRS guide for household employers or a tax professional, not a rule of thumb. And keep the two questions apart. IRS rules answer the tax question. They do not decide how Medicaid treats the arrangement.

The awkward part does some good

Writing a job agreement with your own mother feels cold. One practical upside is that brothers and sisters can see what was agreed. Without it, they are left to puzzle over bank statements years later. We have no proof of how often a contract heads off a family fight. Take that as a reason people give, not something a study found.

Two programs that pay family caregivers

  • Medicaid care you direct yourself. AARP says all 50 states and the District of Columbia have a form of "self-directed" Medicaid long-term care. It lets a person run their own home-care services, in place of an agency. This is how a family member can be paid.[1] What the program is called, who qualifies, what it pays, and if a spouse can be hired are different in each state. Ask your state Medicaid program.
  • The VA's Program of Comprehensive Assistance for Family Caregivers. It is narrower than most families expect. The veteran must have a VA disability rating, single or combined, of 70% or higher. They must be signed up for VA health care. They must have been discharged or have a medical discharge date. And they must need at least six months of ongoing, in-person personal care. The caregiver must be 18 or over, and either a family member or someone who lives full time with the veteran. You apply together. A veteran can name one Primary and up to two Secondary Family Caregivers. The Primary caregiver may get a monthly payment, CHAMPVA health coverage if they have no other coverage, free legal and money-planning help tied to the veteran's needs, and at least 30 days of respite care a year.[4] There is more on the veterans page.

Your Area Agency on Aging (1-800-677-1116) can tell you which programs run in your state.[5]

What only an attorney in your state can tell you

Is a contract right for you? What rate is fair where you live? How does it fit with a later claim under the caregiver child exemption? How does your state's Medicaid program treat it? All of these are questions for an elder-law attorney in your parent's state. The NAELA directory lists members.

What to ask them:

  • What proof of a fair local rate does this state accept?
  • How should payment be set up, recorded and reported here?
  • Does this state's Medicaid program offer self-directed care in place of this, or along with it?
  • How should the agreement fit with the will and other plans, and with any future handing over of the home?
  • We have already been paying with nothing in writing. What can we do now?

Quick answers

Can my parent pay me to be their caregiver?

Yes. The way to do it is a written personal care agreement, signed before payments start. It sets out the services, the schedule and a fair local rate. Payments are made and recorded as the work is done. AARP says to spell out the pay and the services and to have an elder-law attorney check the agreement against the tax rules. AARP also says plainly that caregivers are required by law to report the pay as taxable income. Separately, all 50 states and DC have some form of Medicaid long-term care that lets the person choose their own caregiver, which can pay a family member when the person qualifies. [1]

What happens if my parent paid me informally without a contract?

Then the question is: was the money pay for work, or a gift? Federal rules set a penalty for gifts, and for sales below fair value, made during the look-back period for Medicaid that pays for care in a facility or through some waiver programs. The length of the penalty is the amount given divided by the state's average monthly nursing home cost. Your state's rules, applied to your facts, decide if the money counts as pay or as a gift. So take it to an elder-law attorney in the parent's state soon. [2]

What should a caregiver contract include?

Exact services, not "help as needed." Hours, a schedule, and what happens when the caregiver is sick or away. A rate backed up by what local agencies and private aides really charge. Payment as the work is done, not one big payment for past care. And records: timesheets, invoices and payments that can be traced. Have an elder-law attorney in the parent's state write it. Medicaid treats it differently in each state, and the tax rules depend on who is the employer. [1, 2, 3]

Sources and what they support

Sources checked 2026-09-19 using AI-assisted editorial research. This is a source check, not legal or tax advice.

  1. AARP, you can get paid as a family caregiver. Supports the advice to draw up a personal care agreement spelling out wages and services and to have an eldercare lawyer review it for tax requirements, the statement that caregivers are legally required to report wages as taxable income, and that all 50 states and the District of Columbia offer a version of self-directed Medicaid long-term-care services. This page does not address fair market rate or how Medicaid treats informal family payments, so it is not cited for either.
  2. CMS State Medicaid Director Letter SMD#18-004, 17 April 2018. Supports that transfers for less than fair market value inside the look-back window can create a penalty for institutional and certain waiver long-term-care coverage, and that the penalty length divides the amount transferred by the average monthly cost of nursing facility services in the state or locality. It does not state that family care is presumed free, does not say informal payments are automatically gifts, and does not decide whether any particular agreement will be accepted.
  3. IRS Publication 926, Household Employer's Tax Guide (2026). Supports the $3,000 cash-wage threshold for Social Security and Medicare in 2026, the $184,500 Social Security wage base, the $1,000-per-calendar-quarter FUTA threshold on the first $7,000 per employee, and the exclusions for wages paid to a spouse, to a child under 21 and to a parent, with limited exceptions. These are federal tax rules only. They do not determine Medicaid eligibility or treatment, state taxes are separate, and whether an arrangement is household employment at all depends on who controls the work.
  4. VA, Program of Comprehensive Assistance for Family Caregivers. Supports the 70%-or-higher individual or combined rating, enrolment in VA health care, discharge or medical-discharge condition, the six months of continuous in-person personal care, the caregiver conditions, the joint application, one Primary and up to two Secondary caregivers, and the Primary caregiver benefits including the monthly stipend, CHAMPVA, legal and financial planning help and at least 30 days of respite a year. Eligibility is determined by the VA on application; meeting the listed conditions is not approval. This replaces an older caregiver.va.gov address for the program.
  5. Administration for Community Living, Eldercare Locator. Supports the referral route to a local Area Agency on Aging. An Area Agency on Aging does not determine Medicaid eligibility or draft agreements.

Removed in this pass, for want of a source: the "love and affection" presumption stated as a Medicaid rule; that every dollar of informal payment is treated as a gift; that retroactive contracts generally cannot cure it; that elder-law attorneys report the contract conversation settles more family tension than any other document; and a law-firm blog post about one state's practice cited as a general authority.

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