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Posted January 31, 2007

Ask An Expert

Taxes: When to Withhold -- or Not -- for Caregiving

Q. My 85-year-old mom is legally blind. I am responsible for her care. At this time, I plan to use her savings to hire students from the local university to assist her a few hours per day. My mom's income is such that she does not have to file a federal income tax return. If I have an agreement with the student that I will not be withholding income tax from their payments, what forms do I have to file with the IRS? Any others issues to consider? Thanks.

Meredith, M., Seffner, Florida.

A. The students would be employees of you or your mother, depending on who is paying them. You will need to have their Social Security numbers so you can issue them year-end payroll forms -- Form W-2s.

If it is your mother who is paying, then she may need to file a Schedule H with her income tax return to pay the payroll taxes (Social Security and Medicare), even if she does not have to pay any income tax. It depends on how much each person earns. She may also need to file with the state for unemployment tax.

You can read more about this topic and the federal filing requirements at the IRS website and look for Publication 926, Household Employer's Tax Guide. You may also want to check with your state to see if your mother needs to have a workmen's compensation policy.

This answer has been provided by Carol I. Katz, MS, CPA/PFS, CFP, CVA, the Deputy Tax Director at Leonard J. Miller & Associates, Chartered, in Baltimore, Maryland. Carol Katz works exclusively in the tax and financial planning areas, has been published in professional journals and has discussed tax issues on television and public radio. She can be reached at carolkatz@lenmiller.com.

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