Paying family caregivers — the legal way to compensate yourself or siblings

This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.

You've given up three afternoons a week to help your parent with medical appointments and household management. Your sister is handling medication management and bill paying. Your brother is doing repairs and yard work. Nobody's being paid. Everyone's doing this out of love and obligation and because the work has to be done. And it's starting to create tension.

Some of you could use the money. Some of you could use the recognition that this is real work. Some of you are wondering whether you should be paid the same amount for the same work, or whether the person with the most time invested should get more. Some of you feel like you're being taken advantage of. Some of you feel guilty for even thinking about payment when your parent is struggling.

The question of whether to pay family caregivers (and if so, how much and how to structure it) sits at the intersection of family relationships, money, fairness, and law. There are legitimate ways to do it. You can have your parent pay you or your siblings for caregiving work. You can use your parent's assets to compensate people who are providing care. You can structure these payments so they're legal, they're fair, they're documented, and they don't create Medicaid problems or IRS problems or family disasters.

But you can also do it in ways that look like theft, create family conflict, cause legal problems with Medicaid or the IRS, or violate your parent's trust. The difference is in how you think about it, how you structure it, and how you document it. This article walks through when paying family caregivers makes sense, how to do it legally, and what to think about before you start.

Understanding the Costs

Before you talk about paying anyone, you need to understand what caregiving actually costs and what options exist for funding it.

The first step is understanding what care your parent actually needs. Not what you think they need or what would be nice to have, but what they actually require to be safe and healthy. Does your parent need full-time in-home care because they have dementia and can't be left alone? Or do they need help once a week with household tasks? Do they need skilled nursing care because they have a complex medical condition? Or do they need transportation to appointments? The scope of care dictates what it would cost to hire someone to do it.

Research what professional care would cost in your area. Call home care agencies. Ask about the cost of an aide for a few hours a week. Ask about the cost of full-time care. Ask about the cost of specialized care: someone with medical training, someone to handle dementia care, someone to provide physical therapy. Get actual numbers. This gives you a sense of what the market value of the work is. If you're paying a family member to do work that would cost $30 an hour if you hired someone, you have a baseline. If you're paying them $10 an hour to do that work, you're paying significantly less than market rate.

Project how long your parent's assets would last if they were paying for professional care. If your parent has $200,000 in savings and needs $50,000 a year in care, the math is pretty clear. If they're paying $20,000 a year, it's a different story. If they're going to need care for five more years and have $300,000, there's cushion. If they're going to need care for ten years and have limited assets, there's urgency.

Think about what combination of family caregiving and paid care makes sense. Some families decide that family members will do what they can and paid care will fill the gaps. Some families decide they'll use professional care and keep family caregiving to emotional support. Some families have one family member do most of the work and pay them for it. Some families rotate responsibility or share it in some other way. There's no one right answer. It depends on what your parent needs, what each family member can realistically provide, what's affordable, and what works within your family.

Sources of Payment

Once you understand what care is needed and what it would cost, you need to identify where the money would come from to pay for it.

Your parent's Social Security and pension income are usually the foundation. These typically cover basic living expenses: housing, food, utilities. But they often don't cover care that's beyond basic living expenses. If your parent's Social Security is $2,000 a month and their housing costs $1,500, they have $500 left for food, utilities, medical care, and everything else. Where does money for paid caregiving come from?

Some of it comes from savings or investments your parent has. Some people have retirement savings, investment accounts, or other liquid assets that can be used for care. Some people own homes with equity that can potentially be accessed through a reverse mortgage or sale. Some people have life insurance that includes a long-term care rider. Understanding what assets your parent has available to pay for care is the foundation of the conversation.

Medicare covers some things. Skilled nursing care after a hospitalization might be covered. Some home health services might be covered, but they have to be medically necessary and ordered by a doctor. They also require that your parent be essentially homebound. Medicare doesn't cover help with activities of daily living (bathing, dressing, eating, toileting) unless it's part of a covered medical service.

Some insurance policies cover long-term care. People who bought long-term care insurance years ago have it. People with life insurance that includes a long-term care rider have it. Some disability insurance policies cover long-term care. If your parent has any of these policies, they should be reviewing them to understand what's covered and when.

Medicaid covers long-term care for people who meet financial and care requirements. If your parent's assets run out or are limited, they might qualify for Medicaid, which would pay for care. But Medicaid rules are complex, and there's a waiting period and assets have to be below a certain level. Understanding whether your parent might eventually qualify for Medicaid is important for long-term planning. If they might, the way you structure and document care payments becomes very important.

What's left is usually family. Family members might pay for care out of pocket. The parent might pay a family member for providing care. Or in some situations, family members might contribute to help pay for care. This is where paying family caregivers comes in.

Making It Work

If you decide that your parent will pay a family member for caregiving work, there are several things you need to think about to make sure it's done legally and fairly.

First, establish a clear, written agreement about what the person is being paid for and how much. This doesn't have to be formal or legal-sounding. It just needs to be clear. It might say: "Mom will pay me $25 per hour for caregiving services, including help with medications, appointments, household tasks, and personal care. I will track hours worked and submit an invoice each month." Or it might say: "Dad will pay me $1,500 per month for full-time care including all household and personal care services." The specificity matters because it creates a record of what was agreed.

The amount has to be reasonable. It can't be more than what professional care would cost in your area. It probably shouldn't be dramatically less unless the family member is explicitly agreeing to that. If you're paying someone $30 an hour and the market rate is $25, that's fine. If you're paying someone $15 an hour for work that commands $30 an hour in the market, that's either a gift or it's suspiciously low. If someone later challenges it (maybe your parent's other children, maybe Medicaid, maybe the IRS), the low rate might raise questions.

Keep meticulous records of work actually done. If you're being paid hourly, track your hours. Keep a simple log: date, time started, time ended, what you did. If you're being paid a monthly amount, track what you did during that month. This creates documentation that the money was actually earned for services rendered, not simply transferred without work.

Submit invoices. This formalizes the transaction. An invoice says: "I provided these services in this time period for this amount. Please pay." It creates a paper trail. Payments should be made by check or transfer that can be traced, not cash. You want documentation showing that your parent paid you and you received payment.

Keep tax documentation. If you're being paid to provide care, you might owe self-employment taxes or income taxes on that income. Depending on the arrangement, your parent might need to file a 1099 if they're paying you as an independent contractor. Or you might be treated as an employee and they might need to handle payroll taxes. This varies depending on the arrangement and your state's laws. Consulting with an accountant about how to structure this properly is important. It's boring and it costs money, but it prevents problems later.

Think about what happens if your parent needs Medicaid. If you're being paid for care, and the care is documented and reasonable, it's generally fine. Medicaid won't pay for care that was already provided. But if the amount is excessive or if it's not documented well, Medicaid might question it. This is where good documentation really matters. If you've kept records of the work and hours, if you've submitted invoices, if you've documented what was paid for, Medicaid is more likely to accept that the payment was legitimate.

Also think about fairness among family members. If you're being paid and your brother is also providing care but isn't being paid, that creates tension. Maybe your brother is fine with it because he doesn't have the financial need. Maybe he's angry about it because he feels like the work isn't being valued. These conversations are hard, but they're easier to have before conflict develops. If you're going to pay one family member for care, be transparent about it and be clear about why that person is being paid and others aren't.

Consider whether you want to use Medicaid pay-to-care programs if your parent qualifies for Medicaid. In some states, Medicaid has programs that allow family members to be paid for providing care. The rules are specific, the rates are set by the state, and there are administrative requirements. But if Medicaid is going to be paying for care anyway, having a family member provide it and get paid is often better than having to hire someone. The money goes to someone you trust to do good work, and Medicaid is funding it.

The Bigger Picture

The decision to pay family caregivers should be made carefully and thoughtfully. It's not something to decide on the fly or to do quietly in hopes that nobody notices.

Talk to your parent about it directly. "We're doing a lot of care work. Would you like to compensate any of us for it?" Some parents will immediately say yes. Some will feel uncomfortable about it. Some will think it's inappropriate. Understand what your parent wants and is comfortable with.

Talk to your family about it. If one person is going to be paid and others aren't, everyone should understand why and have a chance to voice concerns. If you're going to split payment among family members, that should be discussed and agreed upon. If payment is going to come from your parent's assets, and that affects what gets left in the estate, people need to know and have a chance to discuss it.

Think about it from your parent's perspective. Caregiving isn't a transaction. It's relationship. But if your parent is uncomfortable with family members providing care without compensation, it matters to acknowledge that and address it. Some parents want to compensate adult children for care because they don't want to feel like they're extracting unpaid labor from their kids. That's fair. Some parents view caregiving as something that family does and don't feel right paying for it. That's also fair.

Make sure it's sustainable. If you're paying one family member a large amount from your parent's assets, and that's going to deplete those assets quickly, make sure everyone understands that. If paying family members means your parent runs out of money faster, people need to know and accept that possibility.

Document it clearly in your parent's will or estate plan. If payment to a family member for caregiving is going to be taken out of the estate before anything is distributed to heirs, that should be in the will. If it's meant to reduce what that person inherits, that should be clear. If it's in addition to their inheritance, that should be stated. The last thing you want is confusion and conflict after your parent dies about whether the payments were meant to be gifts, advances on inheritance, or fair compensation for work.

At its heart, paying family caregivers is about recognizing that care work is work. It has value. It has costs. It takes time and energy. If your parent has the means to acknowledge and compensate people doing that work, there's nothing wrong with that. If your parent doesn't have means, or isn't comfortable with it, family caregiving still happens. But being thoughtful about the structure, the documentation, and the family communication makes it more likely that the arrangement will work without creating conflict.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation.