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Risks of Paying Caregivers Under-the-Table

April 16, 2020

If you or a loved one requires long-term care and wants to remain in your own home, you may be questioning how to pay caregivers.

While it may seem easiest to pay them under-the-table, doing so can leave you unprotected against lawsuits, tax evasion penalties, and Medicaid divestment penalties. In order to safeguard against negative consequences, all paid caregivers should be employed legally.

Lawsuit Risk

While paying caregivers under-the-table, you are personally liable for any injury or illness they receive in the workplace.

This means if your caregiver should happen to have an accident, such as slipping on your icy sidewalk and breaking their hip, they could sue you for the medical bills. You could end up paying these expenses out-of-pocket.

By employing your caregiver legally, workers compensation insurance can help protect you from this type of lawsuit. Workers compensation covers lost wages and medical treatment of an employee’s work-related injury or illness.

Tax Evasion

When employees are paid off-the-books and don’t report their caregiver income on taxes, they are participating in tax evasion. By not paying household employer taxes, you are also evading necessary taxes. By evading taxes, your caregiver will not receive any employment benefits, and can’t legally claim you as an employer which could hurt their future employment opportunities.

Individuals caught evading taxes are generally subject to substantial penalties from the IRS. In order for your caregiver to be legally employed, all required federal, state, and local taxes must be withheld and deposited throughout the year, taxes must be processed, and W2s must be issued to caregiver employees.

Jeopardize Medicaid Divestment

Many people count on the assistance of Medicaid to help pay for their long term care. However, Medicaid is designed to pay for care only once an individual’s own funds and assets are extinguished. If you are hoping to leave some of your savings or assets behind for a loved one, you may be considering giving them the asset now in order to qualify for Medicaid.

While this may have worked prior to 2006, since then Medicaid has enacted a five year look back to ensure the social welfare only helps those truly in need. When you apply for Medicaid, any gifts or transfers of assets made within five years of the date of application are subject to penalties. Some types of transfers are not subject to penalization, but there are very specific requirements.

Paying family caregivers under-the-table will provide no legal documentation of their employment with you. This will likely bring the validity of payments into question during Medicaid’s look back and they may be penalized as gifts.

Legal proof of employment will be required for each of your paid caregivers should you apply for Medicaid. This will be easily provided if your employees have paid taxes and been issued W2s for their caregiver income.


Paying a caregiver under-the-table may seem like the cheapest and easiest route to receiving in-home care, but it can be costly to your future. If the idea of legally employing caregivers seems daunting, look into financial management services to see how they can help.