Elder Law Answers
The Alzheimer's Advisor: A Caregiver's Guide to Dealing with the Tough Legal and Practical Issues
This book provides a guide to the legal and ethical aspects of caring for a family member with Alzheimer's disease. Read more
Can a Family Member Under a Personal Service Contract Receive Wages Through a Will?
- September 29th, 2016
Q
I have questions about personal service contracts. 1.) Does the contracted person HAVE to draw the money? Can the contracted person keep the money where it is, not touch it, and avoid paying taxes on it? 2.) If there is money left over that was not allocated, what are the tax ramifications if the contracted person is an heir and is willed the remaining money?
A
The person under the contract does not have to receive wages--anyone can work for free. The employer, however, would probably be violating employment law – for example, rules regarding minimum wage. If no one complains about the violation, it is unlikely there would be a problem. If the employee is not paid he or she doesn’t have to pay taxes.
If the employee is paid from the employer's estate, when the employee receives the money, he or she will have to report it as income and pay appropriate taxes. If the employee receives the wages as a lump sum, it may push the employee into a higher tax bracket. Also, it may have an effect on FICA or self-employment tax and the employee’s Social Security benefits in the future.
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For information about personal service contracts, go here: http://www.elderlawanswers.com/caregiver-contracts-a-growing-planning-trend-for-families-5646
To find out if a personal service contract is right for you, talk to an attorney near you. To find an attorney, go here: http://www.elderlawanswers.com/elder-law-attorneys.
Last Modified: 09/29/2016
