How can Aid and Attendance Pension Pay Family Caregivers?
Pension with aid and attendance is one of only a few government programs that pays family caregivers to provide care services for their loved ones to help them remain in their homes.
Here's how it works. Paying a member of the family to provide care at home reduces gross income and allows an individual to qualify for a monthly Pension income with Aid and Attendance. Payments for assistance with ADLs and IADLs to a non-licensed in-home attendant such as a member of the family are medical expenses and thus deductible as long as the attendant provides the disabled individual with health care or custodial care.
Payments must be commensurate with the number of hours that the provider offers to the disabled person. This means payments must be based on hourly rates and not on arbitrary payment schedules. There are few guidelines for what those hourly rates should be. We must assume that the rates should be reasonable compared with similar rates in the community for similar services.
It is important to note that deductible medical expenses from paying family caregivers are applicable to all members of the household. For example, if there is a healthy veteran claimant who has an unhealthy spouse who is generating medical expenses, these are deductible from the combined household gross income. If there is a healthy veteran claimant who has another dependent family member living in the household, who is generating medical expenses, these are also deductible from the combined household gross income. Likewise, a healthy surviving spouse claimant with an unhealthy dependent family member such as a dependent child or adult child who is dependent on the family income, can still deduct medical expenses for that dependent family member. REMEMBER, income is the combined household GROSS income to include a spouse and a dependent child under certain circumstances.
Custodial Care Provided by Non-Licensed Providers
Custodial care can be provided by non-licensed in-home attendants such as family members, friends or non-licensed individuals hired to provide custodial care. Payments made for services to these non-licensed providers are also deductible if the disabled claimant is rated for aid and attendance or is rated for housebound.
Custodial care provided in the home means regular assistance with two or more ADLs; or supervision because an individual with a physical, mental, developmental, or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment. Custodial care may include assisting a person with IADLS ALONE when the person has a serious mental, developmental, or cognitive disorder. This special provision allowing for IADLs is a new and more liberal rule in effect since October 18, 2018.
If the disabled individual needing custodial care is not eligible for a rating for aid and attendance such as the unhealthy, non-veteran spouse of a veteran claimant, there is an alternative way to create a deduction for this non-eligible person as well. The alternative way to create a deduction is where a physician, physician assistant, certified nurse practitioner, or clinical nurse specialist states in writing that due to a physical, mental, developmental, or cognitive disorder, the individual requires the health care or custodial care that the non-licensed in-home attendant provides.
It should be noted, if the non-ratable individual is generating medical deductions, the additional allowance for aid and attendance or housebound is not available. In this case, the basic MAPR either for a veteran with a dependent or a surviving spouse with a dependent is applicable. The resulting benefit is much smaller than a benefit with a rating for aid and attendance or housebound.
All reasonable fees paid to the attendant for personal care of the disabled person and maintenance of the disabled person's immediate environment may be allowed. This includes such services as cooking for the disabled person, housecleaning for the disabled person, and other IADLs.
It is not necessary to distinguish between medical and non-medical services. However, services that are beyond the scope of personal care of the disabled person and maintenance of the disabled person's immediate environment, may not be allowed. Such services such as providing vacations, transporting to entertainment events paying for skills training and so forth would not be within the scope.
Suppose a veteran claimant receives an aid and attendance rating by VA. The veteran pays an in-home attendant to administer medication and provide for his or her personal needs such as bathing and dressing. The attendant also cooks the veteran's meals and cleans house. The entire amount paid for all of these services is a deductible medical expense. The attendant does not have to be a licensed health care provider as well.
When the fees for an in-home attendant are an allowable expense, receipts or other documentation of this expense are required. Documentation could include any of the following
- a receipt or paid invoice
- statement on the provider's letterhead
- computer summary
- an Internal Revenue Service (IRS) Form W-2
- ledger, or
- bank statement.
The evidence submitted must include all of the following
- amount paid
- date payment was made
- purpose of the payment (the nature of the product or service provided)
- name of the person to or for whom the product or service was provided, and
- identification of the provider to whom payment was made.
No annual verification of in-home attendant annual fees paid is required. The claimant is only required to submit documentation of expenses when in-home attendant fees are first claimed, or when the person or company providing the service changes. However, maintaining records of payments for care is extremely important in case of an audit.
Using a Personal Care Arrangement for In-Home Care
The personal care arrangement using a member of the family, or a friend or a private live in caregiver solves a lot of the challenges discussed in the section on paying outside professional caregivers. This arrangement works due to a provision in the Pension income rules that allows the paid caregiver to turn around and use the money she is receiving for her services to pay the household maintenance costs.
As we discuss in the income limit section from the table of contents, if someone furnishes a claimant free room and board, or pays the claimant's bills, the value of room and board or the amount paid for bills is not countable as income to the claimant.
Or under another provision of that rule, regular cash contributions to the claimant are considered maintenance, and are not counted as income, if evidence shows that the donor has assumed all or part of the burden of regular maintenance of the claimant, and cash contributions are used by the claimant to pay for basic necessities, such as food or housing. In other words, a person can pay the claimant for maintenance costs and does not necessarily have to pay the claimant's bills as long as the claimant uses the money for that purpose.
With a personal care arrangement, a member of the family such as a child or grandchild or other relative or even a caring friend draws up an agreement with the claimant to provide custodial care-based on a reasonable hourly rate. The caregiver providing the custodial services may live in the claimant's home or the claimant receiving the care may live in the household of the caregiver. Or sometimes the caregiver lives nearby and can drop in every day to provide the services.
Let's use one of the examples in the section on paying home care from the table of contents to show how a personal care arrangement works. In our example in that section, we have a couple where the veteran is in need of care. The combined gross household income is $3,000 a month. For purposes of this example let's suppose the Pension benefit for this couple with the aid and attendance allowance is $2,266 a month and the 5% deductible is $75 a month.
From the section on home care services, we know that this couple needs to pay at least $3,075 a month to generate the full Pension benefit of $2,266 a month. The couple sets up a personal care arrangement with their daughter. They agree to pay her $2,900 a month for custodial services-based on a reasonable hourly rate. They also report $200/month in health insurance premiums on the application. This creates a benefit of $2,266 a month from VA. So the total household income with the Pension benefit is now $5,266 a month.
Issues with the Personal Care Arrangement
There can be problems with these care arrangements. VA continues to audit a small percentage of Pension claims, especially if there is an issue of incompetency. Meaning VA has determined the beneficiary cannot handle their own finances. The audit will require additional documentation to verify the actual costs and services provided.
In the event of an audit, in order to protect the individuals providing care, there should be an appropriate care contract in place. In addition, members of the family or other informal caregivers being paid for care fall under the IRS domestic employee rules -- the so-called "nanny tax." Taxes need to be withheld and paid and a W-2 needs to be issued. Even though a burden, this has a benefit as it will also create a paper trail to verify that money is exchanging hands on a month-to-month basis and legitimate services are being provided.
Establishing a formal paper trail has another advantage. Often, after these personal care arrangements are set up, the claimant fails to pay the caregiver after a few months because money is coming in from the US Treasury. Why continue to pay for care when money flows in every month without any follow-up?
This failure to pay eventually would lead to a retroactive denial of benefits and a demand from VA to repay all of the benefits for those months where the beneficiary did not pay the caregiver any money. By setting up a formal arrangement with the taxes being accounted for, the money must be paid every month. A formal arrangement creates the continuity of month-to-month payments that ensures the deduction for medical care can be claimed consistently. Without a proper paper trail, it may be difficult to prove that services were paid for.
If the contract also meets Medicaid rules in those states that allow personal care contracts in anticipation of Medicaid, this is an additional benefit to setting up these personal care arrangements. In fact, if the arrangement set up for receiving the Pension benefit does not meet the contract requirements under the Medicaid rules in a particular state and an application for Medicaid is made at some future date, Medicaid may declare the money paid to the children a transfer for less than value. This will create a penalty for Medicaid because Medicaid will argue that the parents transferred the money to the children in a deliberate attempt to get rid of their assets to qualify for Medicaid.
This transfer for less than value problem would only present itself if excess income were being held over to future months or care services were paid out of assets. Money received and spent in the same month is not an asset for Medicaid purposes and the transfer for less than value rule would not apply. In the event money is being held over to the next month or services are being paid from assets, it is necessary for the proper contract if there is an eventual application for Medicaid.
If VA assigns a fiduciary for the benefit award – which is sometimes the case – the fiduciary service representative will require the caregiver to set up accounts according to the way Fiduciary Services requires it. This may be in contradiction to what we are relating here. Don't come back and blame us if VA Fiduciary Services wants a different arrangement and a different contract. The requirements from Fiduciary Services may also create a problem under Medicaid.
As far as a personal care attendant being a contractor and receiving a 1099 as opposed to being a domestic employee and requiring a W-2, caregivers are considered domestic employees. On the other hand, if the caregiver is indeed in the personal-care business and has other clients that the caregiver is servicing with care services, then he or she can receive a 1099 for contract services. Otherwise, if the caregiver only has the parent or relative as a client, he or she is considered a domestic employee under IRS rules and social security and unemployment taxes need to be withheld and a W-2 issued.
Please refer to the table of contents in the top right column of this page for more topics on Pension with Aid and Attendance.
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TABLE OF CONTENTS
Pension – The
So-Called Aid and Attendance Benefit
- What is Pension
- Who is eligible
- What are the incomes
- How is it calculated
- What are the ratings
- Deductible medical costs
- Pay family caregivers
- Pay home care
- Pay independent living
- Pay assisted living
- Pay nursing home
- Additional benefits
- Medicaid and Pension
- The income limit
- The net worth limit
- Penalty for gifting
- Meeting net worth
- Application process
- Submitting a claim
- Locating claims forms
- Claims help not needed
- Claims help needed
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