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Here’s a common question:
My sister moved in with Mom last spring to take care of her. Now she says she needs $3,000 a month for it, out of Mom’s savings. My brother says that’s stealing our inheritance. Who’s right?
Let’s say that’s Nancy talking. She’s a made-up example of a common family fight, and it’s one worth settling with numbers instead of yelling.
In Nancy’s story, her sister Ellen gave up a paycheck to care for their 84-year-old mother. Their brother, Rob, thinks paying Ellen is a backdoor raid on the estate.
Here’s my answer as a CPA: Ellen isn’t wrong to ask, and Rob isn’t wrong to worry. Both of them are wrong to do this on a handshake.
They have plenty of company. An AARP and National Alliance for Caregiving report found that 63 million Americans, nearly 1 in 4 adults, provide ongoing care (1). Only 11.2 million family caregivers receive some compensation, and those who pay out of pocket spend roughly $7,200 a year on average (1).
Get it wrong, and you can trip over Medicaid’s look-back rules (2) and the IRS (3), not to mention Thanksgiving dinner. Here are five things this family needs to do.
1. Paying a family caregiver is legal, and often fair
Caring for a parent full-time is a job. The person doing it may give up wages, savings and sometimes their own health insurance.
Paying them from the parent’s money isn’t stealing. It’s paying for a service the parent would otherwise buy from an agency. The question isn’t whether Ellen gets paid. It’s how.
Planning ahead for care costs can also take some pressure off the family. According to government data, about 7 in 10 people turning 65 will need some form of long-term care. And Medicare doesn’t cover custodial care — the day-to-day help with things like bathing and dressing — which can leave families facing six-figure bills that eat into retirement savings.
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2. Put it in writing before the first check
This is the step families skip, and it’s the one that matters most.
When someone applies for Medicaid long-term care, the program looks back 60 months at assets given away for less than fair market value (2). A transfer like that can make the person ineligible for certain Medicaid help for a period of time (2).
Money moving from Mom to Ellen with no paper trail looks a lot like a gift, even if Ellen earned every penny. A written caregiver agreement, signed before payments start, that lists the duties, the hours and the pay, is how you show it was a fair deal for real work.
State rules vary, so have an elder law attorney draft or review it.
3. Pay a fair price, not a guilty one
Fair means roughly what Mom would pay someone else. The Bureau of Labor Statistics says the median wage for home health and personal care aides was $17.21 an hour in May 2025, or $35,800 a year (4).
Ellen’s $3,000 a month works out to $36,000 a year. That’s right in line with what a full-time aide earns at the median.
Pay going forward, on a schedule, like any job. A big lump-sum “back pay” check for care that was already given is exactly the kind of transfer that can raise questions later.
4. Don’t forget the tax part
The IRS says caregivers are typically employees of the people they care for (3). Whatever the setup, Ellen must report the pay as income on her tax return (3).
Mom may also become a household employer. For 2026, if you pay one household employee cash wages of $3,000 or more, you generally have to withhold and pay Social Security and Medicare taxes (5). Wages paid to your own child are exempt from those taxes only if the child is under 21 (5), and Ellen’s well past that.
That means payroll paperwork, a W-2 and possibly quarterly payments. It’s a hassle, but it’s also proof the arrangement was a real job.
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5. Get Mom’s paperwork in order, too
If Mom can still make decisions, she should sign the caregiver agreement herself, along with a durable financial power of attorney so someone can handle her money if she can’t.
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It’s also worth asking whether Mom’s state Medicaid program offers self-directed services. Medicaid.gov says those programs let participants recruit, hire and supervise the people who provide their care (6). Ask the program whether it lets participants hire a relative.
The bottom line
Nancy’s family doesn’t have a money problem. It has a paperwork problem that will turn into a money problem.
Write it down, pay a fair rate, handle the taxes and tell every sibling what’s going on before the first check clears. Secrets are what turn caregiving into a feud.
Love doesn’t come with a W-2. Caregiving can.
Sources: 1. AARP; 2. Cornell Law School Legal Information Institute (42 U.S.C. 1396p); 3. IRS; 4. Bureau of Labor Statistics; 5. IRS Publication 926; 6. Medicaid.gov
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