Resource Guide
How to Set Up a Family Caregiver Agreement
Pay a family member fairly for the care they give, without putting Medicaid eligibility at risk.
Why Paying Family Needs to Be in Writing
When an adult daughter cuts back her hours to care for her dad, it feels natural for him to pay her. But if he later needs Medicaid to pay for nursing home care, every payment he made during the past five years gets reviewed.
Without a written agreement, Medicaid usually presumes those payments were gifts. The result is a penalty period: months when Medicaid will not pay, while the national median nursing home cost runs $9,581 a month.
A family caregiver agreement turns those payments into documented compensation. It protects your loved one's eligibility, honors the caregiver's work, and keeps siblings on the same page.
What Every Caregiver Agreement Should Include
Six clauses that Medicaid caseworkers and elder law attorneys look for.
Parties & start date
Full names of the care recipient (or their agent under a power of attorney) and the caregiver, plus the date services begin. The start date must be on or after the signing date.
Specific duties
A detailed list of the services provided, such as personal care, meals, medication reminders, transportation, appointments, and bill paying. Vague phrases like 'help as needed' invite scrutiny.
Rate, hours & payment
The hourly rate, expected weekly hours, how overtime is handled, and the payment schedule. Payments should be made as care is delivered, not in advance and not as a lump sum.
Record keeping
A requirement that the caregiver keeps a dated daily log of hours and tasks, signed periodically, and that the records are kept for at least five years.
Changes & termination
How the agreement can be amended in writing, what happens when care needs increase, and how either party can end it, including what happens if the person moves into a care facility.
Family transparency
Many attorneys recommend that other siblings are told about the agreement, or sign an acknowledgment, to prevent conflict and accusations later.
Step-by-Step: How to Set Up a Family Caregiver Agreement
Follow these six steps, in order, before the first payment is made.
1. Document the care that's needed
Write down which Activities of Daily Living (bathing, dressing, toileting, eating, transferring, continence) and everyday tasks (meals, medications, transportation, bills) your loved one needs help with. A note from their doctor confirming the need for care strengthens the agreement if Medicaid reviews it later.
2. Set a fair market hourly rate
Research what local agencies and private caregivers charge for the same tasks. The 2026 national agency median is about $39/hr. Choose a reasonable rate at or below local market value, and keep the research you used, such as screenshots or quotes, with the agreement.
3. Write the agreement before care begins
Include the parties' names, specific duties, expected hours per week, hourly rate, payment schedule, start date, how changes are made, and how the agreement ends. Payment must be for future care only. Never include payment for care that was already provided.
4. Keep a daily care log
Record the date, hours worked, and tasks completed every day, and pay on a regular schedule (weekly or every two weeks) by check or bank transfer, never in cash. This log is your proof that payments matched real services during the Medicaid look-back.
5. Handle taxes and payroll correctly
Decide whether the caregiver is a household employee (most common) and set up withholding, quarterly payments, and year-end W-2 filing. Many families use a household payroll service. The caregiver reports the pay as income on their own tax return.
6. Have an elder law attorney review and sign
State Medicaid rules vary. An elder law attorney can confirm the agreement meets your state's standards, coordinate it with powers of attorney, and make sure it's signed and dated before services start. If the care recipient lacks capacity, the agent under a financial power of attorney may need to sign.
Need a place to track hours? Use our free caregiver compensation tool to see which paid-caregiver programs your state offers.
Informal Payments vs. a Written Caregiver Agreement
How Medicaid and the IRS typically view the same payments, with and without a contract.
| Category | Informal / verbal arrangement | Written caregiver agreement |
|---|---|---|
| Medicaid look-back treatment | Presumed a gift and may trigger a penalty | Treated as payment for services (if fair value) |
| Payment for past care | Common, and a major red flag | Not allowed; future care only |
| Rate documentation | None | Tied to local market rates |
| Proof of services | Memory and goodwill | Dated daily care log |
| Taxes | Often unreported | Reported as income; household employer rules followed |
| Sibling transparency | Often a source of conflict | Terms are clear and shared |
How Caregiver Agreements Fit With Medicaid and VA Benefits
Medicaid long-term care
In 2026, the Medicaid income benchmark for long-term care is $2,982/month in most income-cap states, and countable assets for a single applicant are typically limited to about $2,000. Paying a family caregiver under a valid agreement is one of the legitimate ways to spend savings on real care while staying compliant.
Rules vary by state. See our Medicaid application guide and asset protection guide.
VA Aid & Attendance
Wartime veterans and surviving spouses who need help with daily activities may receive up to $2,874/month (veteran with a dependent), $2,424/month (single veteran), or $1,558/month (surviving spouse) in 2026. The net worth limit is $163,699.
Payments to a family caregiver under a written agreement can count as unreimbursed medical expenses for VA purposes. Learn more in our Veterans benefits guide.
Medicaid eligibility rules, look-back penalties, and caregiver agreement standards vary by state. This guide is educational and is not legal or tax advice. Consult an elder law attorney in your state before signing a caregiver agreement or applying for Medicaid.
Frequently Asked Questions
Common questions about family caregiver agreements.
What is a family caregiver agreement?
A family caregiver agreement (also called a personal care agreement or caregiver contract) is a written contract in which a family member agrees to provide specific care services to an older adult in exchange for fair, regular pay. It documents duties, hours, the hourly rate, and how payment is made, so payments are treated as compensation rather than gifts.
Can Medicaid penalize payments to a family caregiver?
Yes. Medicaid reviews every transfer made during the 5-year (60-month) look-back period. Payments to a family member without a written agreement signed before the care was provided are usually presumed to be gifts, which can trigger a penalty period during which Medicaid will not pay for long-term care.
Can I be paid for care I already provided in the past?
Generally no. Medicaid presumes that care provided by family before a written agreement existed was given for free out of love. Retroactive or lump-sum catch-up payments are a common cause of look-back penalties. Agreements should be prospective only: sign first, then provide care and get paid as you go.
How much should a family caregiver be paid?
The rate should reflect fair market value in your area for similar services. Nationally, agency home care runs about $39/hr in 2026 based on the CareScout median. Family caregivers are often paid somewhat less than agency rates because there is no agency overhead. Check your state's home care costs and keep a copy of how you set the rate.
Does a family caregiver have to pay taxes on the income?
Yes. Payments under a caregiver agreement are taxable income to the caregiver. If the caregiver is treated as a household employee and paid $2,700 or more in 2026, the care recipient generally must withhold and pay Social Security and Medicare taxes and issue a W-2 (IRS Publication 926). A tax professional can confirm the right setup.
Can a spouse be paid under a caregiver agreement?
Usually not for Medicaid purposes. Spouses have a legal duty of support to each other, so most states will not recognize payments to a spouse as compensation. Adult children, siblings, grandchildren, and other relatives can typically be paid under a properly written agreement.
Can VA benefits help pay a family caregiver?
Often, yes. VA Aid & Attendance pays up to $2,874/month in 2026 for a veteran with a dependent, and that money can be used to pay a family caregiver under a written agreement. The VA's Veteran Directed Care and caregiver support programs may also pay family members directly.
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Sources & references
Verified October 2026- Centers for Medicare & Medicaid Services: Index
- Internal Revenue Service: P926
- U.S. Department of Veterans Affairs: Veterans Pension Rates
- U.S. Department of Veterans Affairs: Long Term Care
- CareScout (Genworth): Cost Of Care