A Georgia personal care contract pays a family caregiver fair-market wages for documented care, so the money counts as compensation rather than a gift that triggers the Medicaid transfer penalty. Federal law allows this because a transfer made for fair-market value is not a penalizable transfer. If you are already caring for an aging parent in Georgia and that parent will one day need Medicaid to pay for nursing care, this is one of the most practical planning tools you have.

In This Guide

Why a Georgia personal care contract matters for Medicaid

The situation is common. An adult child cuts back work hours to help an aging Georgia parent: appointments, medications, bathing, meals, bills. Years of care accumulate, and the parent's savings stay largely intact precisely because the family member did the work a paid agency would otherwise have done. Eventually the parent needs nursing-facility care, and Medicaid will pay for it.

The obstacle is the asset limit. Georgia Medicaid's resource limit for an aged, blind, or disabled applicant is $2,000 for an individual. A parent whose savings exceed that limit must spend down before Medicaid will pay. The fairest move, for many families, is to compensate the child who provided the care. But informal payments, cash gifts, and "I will pay you back" promises are treated as gifts under the federal transfer rules, and gifts inside the look-back window create penalties.

A personal care contract solves the problem by formalizing what is already happening.

The catch is that these contracts are technical, and DCH scrutinizes them at application.

The federal transfer-of-assets framework

The legal foundation sits in the federal transfer-of-assets rules at 42 U.S.C. 1396p(c). Every element of a personal care contract is designed to satisfy one exception inside those rules.

The general transfer rule

When an individual or their spouse transfers assets for less than fair market value within 60 months of applying for Medicaid long-term care, Medicaid imposes a penalty period during which it will not pay for that care. The penalty length equals the value transferred divided by Georgia's average monthly private-pay cost of nursing-facility care, and the period begins on the later of the transfer date or the date the person is otherwise eligible and receiving institutional-level care. This 60-month look-back applies to transfers made on or after February 8, 2006, the enactment date of the Deficit Reduction Act of 2005. Federal law also allows an undue-hardship waiver of the penalty when imposing it would deprive the applicant of medical care or the necessities of life.

The fair-market consideration exception

The same statute says that a transfer is not penalizable to the extent the person shows they intended to dispose of the asset at fair market value or for other valuable consideration. This is the legal hook for a personal care contract. When a parent pays a child $20 an hour for documented care, the parent has not made a gift; the parent has bought services at market rate, no different in legal effect from paying a home-health agency the same amount.

For the exception to hold, several elements must line up:

  1. Actual services are provided, not hypothetical future ones.
  2. The services have real value to the care recipient and are not duplicating something they could get free or that is already legally owed.
  3. The wage is fair market value, neither above nor below typical rates for comparable care.
  4. The arrangement is documented well enough to be verified.

Why retroactive and above-market contracts fail

Consideration must exist when the contract is formed. When care has already been given and a contract is written afterward to "document" it, the past care is not consideration; it is a gift the family is trying to recharacterize. DCH treats those payments as transfers for less than fair market value.

Above-market wages fail the same way in part. If a contract pays $50 an hour where comparable Georgia care runs closer to $32 an hour, only the market-rate portion is fair-market consideration and the excess is a gift. The rate needs support you can put in front of a caseworker: Bureau of Labor Statistics wage data for home-health and personal-care aides, the Genworth and CareScout Cost of Care Survey for Georgia, and written quotes from local agencies are the benchmarks an elder law attorney typically assembles.

How Georgia DCH reviews a personal care contract for Medicaid

The Georgia Department of Community Health administers Medicaid, and a personal care contract is weighed when the application is reviewed. The governing rule is the federal fair-market consideration exception at 42 U.S.C. 1396p(c): a transfer is not penalizable to the extent the applicant makes a satisfactory showing to the state that the assets were disposed of at fair market value or for other valuable consideration.

What a contract review turns on

These are the questions a Georgia elder law attorney drafts a contract to answer:

  • Is the contract in writing? Verbal arrangements are treated as gifts.
  • When was it signed, relative to when care began?
  • Are the services specified in detail? Vague descriptions like "help mom around the house" are disfavored.
  • Are the wages fair market? Above-market rates draw partial gift treatment.
  • Is there a log of services actually performed, with dates, hours, and tasks?
  • Is the caregiver reporting the income for tax purposes?
  • Is the caregiver really doing the work, or is this a paper arrangement?
  • Is the caregiver a spouse, or a co-resident whose "care" overlaps with ordinary household life?

What happens when a contract is deficient

If no contract or documentation exists, the payments are treated as gifts and the full amount triggers a penalty. A spousal contract is generally disallowed, with the assets either treated as a gift or simply left countable. For a co-resident, the portion attributable to ordinary shared-household tasks may be treated as a gift.

To survive review, the applicant or their power-of-attorney agent submits the signed contract, the service logs, the tax filings showing the caregiver reported the income, the bank records proving the payments were actually made, and any supporting medical records showing the care was needed.

What the income costs in taxes

Personal care contract income is taxable. That is a feature, not a flaw: legitimate caregiver compensation is reportable income, and that is part of what separates it from a gift. The structure you choose decides who pays which taxes.

The household-employee model (W-2)

Under the common-law test, a directly hired in-home caregiver is usually the care recipient's household employee, which makes the care recipient a household employer. When a household employer pays a household employee cash wages of $3,000 or more in 2026, it generally must withhold and pay Social Security tax of 6.2 percent and Medicare tax of 1.45 percent on those wages, and if it pays household employees $1,000 or more in any calendar quarter in the current or the prior year it generally owes federal unemployment tax as well. The employer obtains an Employer Identification Number, files Schedule H with the annual Form 1040, and issues the caregiver a W-2. IRS Publication 926 is the governing guide.

This model has a real upside for the caregiver: the Social Security and Medicare credits accrue, building future benefits, which matters for an adult child who cut work hours to provide care.

The self-employed model (1099-NEC)

Some families treat the caregiver as an independent contractor who receives a 1099-NEC, reports the income on Schedule C, and pays self-employment tax, which combines the employee and employer halves of Social Security and Medicare into a single tax the caregiver pays. The care recipient avoids household-employer obligations under this model, but the IRS scrutinizes worker classification, and an in-home caregiver who is really controlled like an employee can be reclassified, creating back-tax liability. For routine in-home care, the conservative choice is the household-employee model.

Why the Medicaid waiver exclusion does not apply

A federal income exclusion lets certain difficulty-of-care payments be left out of gross income. IRS Notice 2014-7 limits that exclusion to qualified Medicaid waiver payments made to a care provider who shares the care recipient's home; it does not by its terms reach ordinary private-pay personal-care-contract payments made from the applicant's own funds. A caregiver who also receives waiver payments, for example through Georgia's Structured Family Caregiving service or the developmental-disability NOW/COMP waivers, may be able to exclude the waiver portion when the person receiving care lives in the caregiver's home, but the personal-care-contract portion stays taxable. Do not assume the exclusion covers contract income; ask a CPA about the specific facts.

Worked examples

The examples below are hypothetical and illustrative. Names, ages, and dollar figures are invented to show how the rules play out; they are not real cases or guarantees of any outcome.

Example 1: Margaret, 78, Savannah, daughter caregiver (approved)

Margaret has mild-to-moderate Alzheimer's and about $93,000 in savings, well above Georgia's $2,000 asset limit for an aged, blind, or disabled applicant. Her daughter Patricia lives nearby and has cut her marketing job to part-time to provide roughly 30 hours a week of care: medication management for a complex regimen, meals, transportation, bathing, bills, and coordination with doctors.

On her attorney's advice, Patricia signs a contract effective January 1, before increasing her care, at $20 an hour, comfortably within the fair-market range for personal care in Georgia, where agency rates run closer to $32 an hour. The contract lists the services; Patricia logs her hours daily and Margaret signs the log monthly. At 30 hours a week, the pay comes to about $2,600 a month. Patricia and her CPA set up a self-employed structure, schedule estimated quarterly tax payments, and keep bank records of every payment.

Over roughly three years the contract accounts for the bulk of Margaret's savings as legitimate compensation for care Patricia was already giving. When Margaret enters a nursing facility, her countable assets are at the limit, the documentation is in order, and her Medicaid application proceeds with no transfer penalty.

Example 2: Henry, 85, Atlanta, retroactive contract (denied)

Henry entered a nursing facility after a fall. His son Robert had provided significant care for the prior two years. Three months after admission, they ask an attorney to set up a contract retroactively, paying Robert for the past care.

The attorney advises against it. Care already given cannot be consideration for a contract signed later, so DCH will treat the lump payment as a gift, and a gift inside the 60-month look-back creates months of ineligibility, falling during Henry's actual nursing stay. The family proceeds anyway, DCH rejects the retroactive characterization, and Henry private-pays for an extended penalty period.

The lesson: sign the contract before care begins.

Example 3: Linda, 75, Macon, live-in caregiver child (approved with careful drafting)

Linda has moderate dementia, and her daughter Sarah moved in two years ago to provide full-time care, living rent-free and sharing household expenses. A co-resident arrangement draws extra DCH scrutiny, because sharing a household is not itself caregiving.

Sarah's attorney anticipates this and drafts the contract to compensate only services beyond ordinary co-resident life: dementia-specific care, medication management, bathing assistance, behavioral support, supervision, and transportation, at $25 an hour for documented hours, below the Georgia agency care rate of about $32 an hour. Shared meals and casual time at home are treated as non-compensable co-resident activity. Sarah's daily log keeps the two clearly separate. With that distinction documented, DCH accepts the structure as fair-market consideration.

Example 4: David, 70, Columbus, spouse caregiver (disallowed)

David has Parkinson's disease, and his wife provides his care. They ask about a contract paying her $4,000 a month to convert assets ahead of David's anticipated Medicaid application, an amount that would otherwise have to be protected through the spousal rules rather than a contract.

The attorney explains it will not work. The right tool for a married couple is the Community Spouse Resource Allowance, which lets the at-home spouse keep a share of the couple's countable resources without affecting the applicant spouse's eligibility, under the spousal-impoverishment provisions of 42 U.S.C. 1396r-5. Georgia's Structured Family Caregiving service points the same way: it is an Elderly and Disabled Waiver service, delivered through CCSP and SOURCE, that supports a live-in family caregiver, and a spouse is generally not eligible to be that paid caregiver. Confirm the current eligibility rules with DCH before planning around them. The couple protects assets through the resource allowance and spends the remaining excess on permissible expenses.

Mistakes that get contracts disallowed

Across Georgia personal care contract cases, a handful of errors recur:

  • Signing the contract after care began. Retroactive contracts are treated as gifts. Sign before care starts.
  • Paying above the market rate. The excess over fair market is a gift. Benchmark the rate and keep the support.
  • Keeping no service log. Without dated records of hours and tasks, DCH cannot verify the care.
  • Not reporting the income. The caregiver must file. Skipping it creates both IRS exposure and a credibility problem at DCH.
  • Blurring co-resident life with care. Shared meals and household time are not caregiving; distinguish them in the contract and the log.
  • Trying to pay a spouse. Spousal contracts are generally disallowed under the spousal-duty rule.
  • Writing a vague service description. "Help around the house" is not enough; list specific tasks.
  • Setting up a contract but never actually paying. DCH catches paper arrangements with no money moving.
  • Skipping the elder law attorney or the CPA. Self-drafted or generalist-drafted contracts are the ones that get disallowed, and tax structure decisions are technical.

What to do next

1
Step 1

Tally the care you provide (this week)

Honestly count how many hours and which specific tasks. Confirm the parent is still competent to enter a contract, and gauge whether Medicaid is a realistic future need.

2
Step 2

Consult a Georgia elder law attorney (this month)

Income-eligible families outside metro Atlanta can reach the Georgia Legal Services Program at 1-833-457-7529 (1-833-GLSPLAW) for free civil legal help, and your county bar association can refer a private elder law attorney. The attorney will assess your situation, draft a defensible contract, and coordinate it with the rest of the Medicaid plan.

3
Step 3

Set up the tax reporting with a CPA (before signing)

Decide between the household-employee and self-employed structures and plan estimated quarterly payments. Ask how the new income affects any other benefits the caregiver receives, such as SNAP, SSI, or marketplace premium tax credits.

4
Step 4

Sign, log, pay, and file (then)

Sign the contract before care begins, keep a detailed service log, make the actual payments on schedule, file the required tax forms, and keep everything organized for the eventual Medicaid application.

Where to get help

Georgia Legal Services Program Free civil legal help for income-eligible families in the 154 counties outside metro Atlanta. Ask whether contract drafting is within the local office's scope. 1-833-457-7529https://dhs.georgia.gov/contact glsp.org
Georgia Medicaid (DCH Member Services) Questions about Medicaid eligibility, the application, and how a personal care contract is reviewed. 1-866-211-0950https://www.gabar.org/about-the-bar/contact-us
Georgia Aging and Disability Resource Connection (ADRC) The statewide hotline routes you by ZIP code to one of Georgia's 12 area agencies on aging for local support and caregiver resources. 1-866-552-4464https://acl.gov/programs/veteran-directed-home-and-community-based-services/veteran-directed-home-community-based aging.georgia.gov/programs-and-services/adrc

Frequently Asked Questions

What is a Georgia personal care contract?

A Georgia personal care contract, also called a caregiver agreement or personal services contract, is a written agreement under which a family member or other caregiver provides documented care in exchange for fair-market wages. Properly drafted and signed before care begins, it can satisfy the fair-market consideration exception to the federal transfer-of-assets penalty under 42 U.S.C. 1396p(c), so the payments count as compensation rather than as gifts that would trigger a Medicaid penalty.

Must the contract be signed before care begins?

Generally yes. The Georgia Department of Community Health usually disallows retroactive contracts, because care already provided cannot be the consideration for a contract written later. The conservative approach is to sign before substantial caregiving starts. Limited retroactive treatment is sometimes accepted when strong contemporaneous documentation of prior care exists, but it is risky and varies by reviewer.

How is the fair-market rate set?

By benchmarking it against comparable local care and keeping the evidence. In the 2025 CareScout Cost of Care Survey, which replaced the separate homemaker and home-health-aide categories with one non-medical caregiver rate, agency care in Georgia ran about $32 an hour; because a direct hire avoids agency overhead, a defensible contract rate usually sits at or below that, supported by the caregiver's training and the complexity of the care. Check current local rates before you set a number.

Is personal care contract income taxable?

Yes. Under the household-employee model, the care recipient is a household employer and, on cash wages of $3,000 or more in 2026, generally withholds and pays Social Security tax of 6.2 percent and Medicare tax of 1.45 percent, files Schedule H, and issues a W-2. Under the self-employed model, the caregiver receives a 1099-NEC and pays self-employment tax, which combines both halves of those taxes. The caregiver should plan for the burden and make estimated quarterly payments.

Does the Medicaid waiver income exclusion apply to this income?

Generally no. IRS Notice 2014-7 limits the difficulty-of-care exclusion to qualified Medicaid waiver payments made to a caregiver who shares the care recipient's home, and it does not by its terms reach ordinary private-pay personal-care-contract payments from the applicant's own funds. A caregiver who also receives waiver payments may exclude the waiver portion, but the contract portion stays taxable.

Can I pay my spouse under a personal care contract?

Generally no. Spouses already owe each other care, so the services are a legal duty rather than consideration, and DCH generally disallows spousal contracts. Married couples instead use the Community Spouse Resource Allowance under the spousal-impoverishment provisions of 42 U.S.C. 1396r-5, along with spend-down on permissible expenses. The 2026 federal band runs from $32,532 to $162,660, and each state elects its own standard inside that band, so ask Georgia DFCS which figure applies to your case rather than assuming the maximum.

What if the caregiver already lives with the parent?

Co-resident arrangements require careful drafting. The contract must compensate only services beyond what a co-resident would ordinarily provide, such as medication management, bathing assistance, behavioral support, supervision, and transportation. Shared meals, housing, and casual time at home are co-resident activities, not care, and the service log must keep the two clearly separate.

How is this different from the caregiver child exemption?

They are separate tools. A personal care contract pays fair-market wages for documented care. The caregiver-child exemption, under 42 U.S.C. 1396p(c)(2)(A)(iv), instead lets a parent transfer the home to an adult child who resided in the parent's home for at least two years immediately before the parent became institutionalized and who, as determined by the State, provided care that permitted the parent to stay at home rather than in a facility, without a transfer penalty. A family may use both, but they answer different questions.

Is contract money recovered after the parent dies?

A personal care contract normally terminates at death, with a final payment for services performed, and the money already paid out during life is not an estate asset. Separately, Georgia operates a Medicaid Estate Recovery Program under federal law (42 U.S.C. 1396p(b)). Federal law requires recovery from the estate of a deceased recipient who was 55 or older when they received nursing-facility services, home and community-based services, and related hospital and prescription-drug services, and it lets a state recover other state-plan services at its option. Recovery may be made only after the death of a surviving spouse, and only when there is no surviving child who is under 21 or blind or permanently and totally disabled, and Georgia waives recovery against the first $25,000 of any estate for deaths on or after July 1, 2018.

Do I need an elder law attorney and a CPA?

Both are strongly recommended. A Georgia elder law attorney understands DCH expectations, rate justification, and how the contract fits the broader Medicaid plan, and self-drafted or generalist contracts are the ones most often disallowed. A CPA handles the worker classification, withholding setup, estimated payments, and year-end W-2 or 1099-NEC for the caregiver.

Learn More

MedicaidGeorgia Caregiver Child ExemptionGeorgia Medicaid's caregiver child exemption in 2026: how an adult child who gave 2+ years of care can receive the family home without a transfer penalty. MedicaidGeorgia Medicaid Asset Spend-Down StrategiesGeorgia Medicaid asset spend-down strategies for 2026: the $2,000 asset limit, exempt assets, Miller Trusts, and how to qualify without losing everything. MedicaidGeorgia Medicaid Asset Transfer PenaltyHow the Georgia Medicaid transfer penalty and 60-month look-back work in 2026: the penalty divisor, exempt transfers, and how to cure a penalty. MedicaidGeorgia Structured Family CaregivingGeorgia Structured Family Caregiving (SFC) pays a live-in family caregiver a daily stipend under CCSP and SOURCE. Who qualifies, the pay, and how to apply. MedicaidGeorgia Medicaid Eligibility and Income LimitsGeorgia Medicaid income limits in 2026: the $994 ABD limit, $2,982 long-term-care cap, $2,000 asset limit, Miller Trust, CSRA, and Pathways to Coverage. MedicaidGeorgia Medicaid Estate RecoveryGeorgia Medicaid estate recovery in 2026: the expanded estate definition, the $25,000 waiver, federal exemptions, and how to answer a notice of claim.

Find personalized help planning a Georgia personal care contract at brevy.com.

Your next step If you are already caring for an aging Georgia parent who may one day need Medicaid, consult a Georgia elder law attorney, or call the Georgia Legal Services Program at 1-833-457-7529 if you are income-eligible, and get a defensible personal care contract in place before care begins.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.

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Brevy Care Team

Expert eldercare guidance from Brevy's team of healthcare professionals and researchers.