Picture this: Your mother can’t live on her own anymore, so you cut back your hours at work and start taking care of her. She insists on paying you $2,000 a month. It’s her money, it’s fair, and nobody writes anything down.
Three years later, she needs a nursing home and applies for Medicaid. That’s when the handshake deal comes back to bite.
To Medicaid, $72,000 moving from Mom to you, with no contract behind it, can look a lot like a gift. And gifts made within five years of applying can delay her coverage.
At the national median price of about $355 a day for a private nursing home room, according to the CareScout 2025 Cost of Care Survey, $72,000 covers only about seven months.
A penalty tied to a gift that size can mean months of nursing home bills with no help from Medicaid, right when the money’s gone.
This isn’t a rare problem. About 63 million Americans now provide ongoing care to a family member or friend, according to AARP and the National Alliance for Caregiving, and 11.2 million of them get paid for it.
I’ve been a CPA since 1981, and this is one of those situations where a couple of pages of paper can save a family tens of thousands of dollars. The paper is called a caregiver agreement or personal care agreement.
Why Medicaid cares who got paid
Medicaid looks back 60 months from the date of an application for long-term care.
If money or property was given away for less than it was worth during that window, Medicaid can impose a penalty period, a stretch of time when it won’t pay for nursing home care, according to the Centers for Medicare & Medicaid Services.
Paying a family member for real work isn’t a gift. But without proof, the state doesn’t have to take your word for it.
Mississippi’s Medicaid rules, for example, presume that care a relative provided without a contract was meant to be free, according to the state’s eligibility manual. Payments for that care can then be treated as transfers.
The good news: States generally accept payments made under a proper written agreement. Here’s what yours needs.
1. Sign it before the care starts
Timing is everything. Missouri, for instance, requires that the contract be signed and dated on or before the day the services begin, according to its Medicaid eligibility guidance.
That means you can’t sign a contract today to cover the three years of care you’ve already given. If you’re already caregiving on a handshake, sign an agreement now so at least the payments going forward are protected.
2. Spell out the duties and the hours, then keep a log
Vague won’t cut it. The agreement should list what you’ll actually do — driving to appointments, preparing meals, bathing, managing medications, paying bills — and how often.
Then prove it. New York’s Medicaid agency says credit for care that’s already been provided requires credible documentation, such as a log of dates and hours, according to state guidance.
A simple notebook or a spreadsheet with the date, hours and tasks will do. Five minutes a day now can save months of Medicaid headaches later.
3. Pay a going rate, not a generous one
States expect the pay to match what a professional would charge for the same work in your area. Overpay, and the extra can be treated as a gift.
For a benchmark, the national median for an in-home, non-medical caregiver was $35 an hour in 2025, according to CareScout. Rates vary widely by region, so check local agencies and keep a copy of what you found with your agreement.
Also make sure the care is actually needed. Missouri, for instance, looks for documentation of the person’s need for care, and it won’t count services that duplicate care someone else is already paid to provide.
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4. Pay as you go, not in a lump sum
It’s tempting for a parent to write one big check upfront for years of future care, especially if a Medicaid application is on the horizon. Don’t.
New York says that when a parent prepays a family member in a lump sum for future care, and the contract doesn’t provide a refund if the caregiver can’t do the work, the payment must be treated as a transfer for less than fair market value.
Missouri expects payment when the services are performed, or within two months. The safest approach is also the simplest: Pay monthly, by check or bank transfer, for care already given.
5. Report the income, and tell your siblings
Here’s the part caregivers skip. The money you get is taxable income, and the IRS says a caregiver working in the care recipient’s home is typically that person’s household employee.
That can make Mom an employer. In 2026, if she pays a household employee $3,000 or more in cash wages, she generally owes Social Security and Medicare taxes on those wages, according to IRS Publication 926.
The exemption for family members covers a spouse, a child under 21 or a parent — not an adult child caring for Mom.
And tell your brothers and sisters. Money leaving Mom’s accounts every month can look like you’re draining the estate, even when you’re earning every dime. Written terms and a paper trail head off the fight.
Read more about why parents need to talk about money before it tears a family apart.
Get the agreement in writing, and get it right
Medicaid rules vary a lot from state to state, so treat this list as a starting point, not a template. A local elder law attorney can draft an agreement that fits your state’s rules, but if you don’t do that, at least do the research.
If you’re getting a parent’s affairs in order anyway, you can compare estate planning options in our Solutions Center.
Caregiving is hard enough without a surprise bill from Medicaid. For more on what can happen after a parent enters a nursing home, read “Medicaid Paid for the Nursing Home. Then the State Came for the House.”
And if you’re still figuring out how to get paid in the first place, here’s how to become a paid caregiver for your loved one.
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