Fewer Social Security Contributions: An Often Overlooked Cost of Caregiving

We get a lot of questions in our Caregivers Connect family caregivers support group on Facebook (sponsored by GreatCall) about what to do when caregiving requires you to leave your full-time job and about the possibility of getting paid for caregiving for a family member. While some states do have programs that allow for being paid to care for a loved one, most do not. So unless your family is very wealthy and can afford round-the-clock home care, the choice becomes placing the loved one into a higher level of care or quitting your job to become the primary caregiver.

An overlooked cost of caregiving

When answering one of these money-type questions in our group, Kim Beckham, one of our group members, wanted to call attention to one of the costs of caregiving that is often overlooked, that being contributions to Social Security.

Here was her response:

“As someone who gave up her professional career for caregiving, I was glad to be able to do it. However, the true cost behind the lack of current income never occurred to me. Without even going into lost retirement savings, losing 5 years of Social Security contributions made a lasting and unfortunate impact on my own retirement.

My comment suggested figuring out how to get paid for caregiving to keep Social Security “active” for disability eligibility and increased retirement benefits. If a person is not working for pay and making social security contributions, they may not stay eligible for Social Security Disability benefits. Caregiving is physical work and back injuries are common. The caregiver could easily become disabled himself or herself.

By “active”, I mean earning enough employment credits in a year to keep your eligibility for Social Security Disability benefits. The following is copied from the Social Security website, “The amount needed for a work credit changes from year to year. In 2020, for example, you earn one credit for each $1,410 in wages or self-employment income. When you’ve earned $5,640, you’ve earned your four credits for the year.”

You need a certain number of work credits to qualify

“The number of work credits you need to qualify for disability benefits depends on your age when you become disabled. Generally, you need 40 credits, 20 of which were earned in the last 10 years ending with the year you become disabled. However, younger workers may qualify with fewer credits.”

A self-employed person is considered an independent contractor and must pay their own Social Security taxes and that of their “employer.” This is done through quarterly payments you make to the IRS. Look up IRS publication 535 for Self-Employment Business Expenses.

In-home caregivers are to be considered employees

However, the IRS has stated that in-home caregivers are not independent contractors and are to be considered employees of whoever hires them. The reason for this is the caregiver does not set his/her own hours and does the duties as specified by the client/family i.e. “the employer.” There are some exceptions for family members.

***Please note that this is only general advice. You should consult a tax professional as well as Social Security for definitive information. I am not a tax professional. I actually sell long term care insurance, a career I began after my mother passed from Alzheimer’s.”

Kim can be reached directly at kim.beckham@acsiapartners.com or through her website www.kimltc.com