For decades now, I have been filing applications for Medicaid benefits on behalf of my clients. I would say that in almost every case in which the client lived in their home with the assistance of a home health aide, the client (or more accurately, the client’s family) has paid for all or some of the home health aides in cash, either literally by handing the aide cash for her services or by writing a check to cash to pay the aide for her services.
I will only briefly mention that paying an aide in cash is problem for income tax purposes. At best, a home health aide is an independent contractor of mom who is benefitting from the aides services and who retained the aide to provide those services. As such, mom should issue a form 1099 to the aide at the end of the year to report the amounts of money that mom paid to the aide for the services that the aide rendered to mom. The aide would then be responsible for reporting these earnings to the Internal Revenue Service or IRS.
Now, I can’t be 100% certain, but if a home health aide is asking to be paid in cash, I think it is a fairly reasonable assumption that the aide is not going to report those earning to the IRS and is not going to pay income taxes on those earnings. Whether the aide is here in this country legally or illegally from an immigration standpoint, she must still pay income taxes on her earnings and the failure to do so is tax evasion.
If mom is failing to report those earnings, then mom is engaging in tax evasion with the aide, which is a crime. Do I think people do this frequently? I think people do this all the time. I think there is a billion-dollar industry happening in this country for the past twenty years, at least, in which this type of tax evasion has been occurring. Do I think the government is going to throw mom in jail? No. Do I think there is a probability that the IRS will fine mom for failure to report earnings? I think it is a remote possibility, but certainly not a probability. But, if you ask my opinion, being a lawyer, I would be obligated to tell you that it is illegal.
Worse yet, the home health aide is more likely than not an employee of mom’s, not an independent contractor because the aide is not dictating the terms and manner of her services to mom. The rote duties that the aide is performing to mom do not involving independent judgment and skills. As such, mom is an employer and should be withholding employee-employer payroll taxes. More paid news for mom on the above tax evasion fronts but still something unlikely to cause mom to go to jail.
There are also liability issues in paying an aide “under the table.” Being a home health aide is, quite literally, backbreaking work. What if the aide injures herself lifting mom or falls in mom’s house because of a hazard in the home. Many elderly individuals’ homes are filled with hazards, as “memories” collect over the years in the home and are not discarded.
The aide could sue mom for her injuries. Would homeowner’s insurance cover these injuries? The answer to that question is beyond the scope of my practice, but a judge I know once told me that when she was engaged in the private practice of law she represented insurance companies and insurance companies look for ways not to pay out on their insurance policies. So, this is something to consider.
With all of that said, the main point of this article is the effect on a person’s eligibility for Medicaid benefits when she has paid a home health aide in cash during the five years immediately preceding the date of her application for Medicaid benefits. A recent case of the New Jersey appellate division holds that the Medicaid office was correct in treating these payments as gifts that rendered the Medicaid applicant ineligible for Medicaid benefits.
Since the applicant could not prove that she legitimately paid an aide in cash, the Medicaid office treated the payments as gifts that rendered her ineligible for Medicaid. Now, with no money and no Medicaid benefits, her nursing home bills will not be paid and the facility would be within its rights to discharge her from the facility.