Maryland Caregiver Agreement for Medicaid: How to Structure a Personal Care Contract

If you're providing daily care for a parent with dementia in Maryland, you can be paid for that work — and if the agreement is structured correctly, those payments won't count as gifts under Medicaid's 60-month look-back rule. But an informal arrangement — "Mom pays me $2,000 a month from her checking account" — can be treated as an uncompensated transfer during a Medicaid review, triggering a penalty period that delays coverage.

The difference between a legitimate personal care agreement and a look-back violation comes down to documentation.

What a Personal Care Agreement Is

A personal care agreement (also called a caregiver contract or personal services contract) is a written, legally binding contract between your parent and the family member providing care. It establishes the services being provided, the hours worked, the pay rate, and the payment terms — and it is executed before any payments are made.

The contract converts what Medicaid would otherwise view as a gift into a fair-market-value transaction. Your parent is paying for services received, not transferring assets for nothing in return. When the Local Department of Social Services reviews the 60-month financial history during a Medicaid application, a properly documented agreement shows that every payment had a corresponding service — not a red flag, but a legitimate expense.

Requirements for Medicaid Compliance

Maryland follows federal Medicaid look-back rules for asset transfers, and the state's review process at the LDSS is rigorous. A personal care agreement must meet all of the following to survive scrutiny:

Written and signed before payments begin. A retroactive contract — one created after months or years of payments — does not document those earlier payments. Date and sign the agreement before the first payment.

Fair market rate. The hourly or weekly rate must reflect the going market rate for the services being provided. In Maryland, home health aides through a Residential Service Agency typically charge $25 to $35/hour. If you're paying a family caregiver $50/hour for companionship services that an agency would bill at $28/hour, the difference between the market rate and the inflated rate will be treated as a gift.

Specific services listed. The contract must itemize the services provided — personal care (bathing, dressing, grooming), meal preparation, medication reminders, transportation to appointments, housekeeping, laundry, companionship, and supervision for safety (critical for dementia care). Vague language like "general help around the house" invites a challenge.

Documented hours. Keep contemporaneous records of the hours worked — daily logs, timesheets, or a simple calendar notation of services provided. "I helped every day" won't hold up. "Tuesday 9am-3pm: assisted with bathing, prepared meals, drove to cardiology appointment at 1pm, managed medication at 5pm" will.

Reasonable total compensation. Even at a fair hourly rate, the total contract value must be reasonable relative to the care needs. A parent with early-stage dementia who needs 5 hours of help per week shouldn't have a contract for 40 hours per week at $30/hour ($62,400/year). The LDSS will compare the contract scope to the clinical documentation of your parent's care needs.

No lump-sum prepayments. Avoid paying the caregiver a large upfront sum for "future services." Payments should be made on a regular schedule (weekly, biweekly, or monthly) matching the services actually provided. A $50,000 lump-sum payment for "two years of future care" looks like an asset transfer, not a service payment.

The Caregiver Child Exception — A Separate Rule

Don't confuse the personal care agreement with the caregiver child exception. These are two different Medicaid provisions:

Personal care agreement: Pays a family member for care services at fair market value. The payments reduce the parent's countable assets. Works for any family member.

Caregiver child exception: Allows the parent to transfer ownership of their primary home to an adult child who lived in the home and provided care that delayed nursing home placement for at least two years. The home transfer is exempt from the look-back penalty. This applies only to the home, only to children, and only after two years of co-residence with documented care.

A family can use both — the personal care agreement pays the child for ongoing services while the caregiver child exception eventually protects the home transfer. But each has its own documentation requirements.

Tax Implications

Payments under a personal care agreement are taxable income to the caregiver. This is true whether the caregiver is a family member or not. You'll need to address:

Employment taxes. If the caregiver is treated as a household employee (for example, when the parent controls how the work is performed), the parent may need to withhold and pay Social Security and Medicare taxes (FICA). For 2026, the household-employee FICA threshold is $3,000 in cash wages; the employee share is 7.65% and the employer share is 7.65%. If total cash wages reach $1,000 or more in any calendar quarter in 2025 or 2026, federal unemployment tax (FUTA) also applies.

Income reporting. The parent generally files Schedule H when household employment taxes are due, and the caregiver must report the income on their personal return.

State taxes. Maryland state income tax applies to the caregiver's earnings.

If the family opts for self-directed care through Medicaid after the parent qualifies, a state-approved Financial Management and Counseling Services (FMCS) provider handles all payroll, tax withholding, and reporting. But during the private-pay period before Medicaid, the family is responsible for compliance. An accountant or payroll service can handle this for $50 to $100/month.

How This Fits into a Broader Medicaid Plan

The personal care agreement is one tool in a larger Medicaid planning strategy. It legitimately reduces your parent's countable assets by paying for care they actually receive, while simultaneously compensating the family member providing that care.

In practice, it works best when combined with other spend-down approaches:

• Monthly caregiver payments reduce liquid assets over time
• Payments for home modifications, prepaid burial trusts, and debt payoff reduce assets further
• When assets reach the applicable $2,000 or $2,500 Medicaid limit, the Medicaid application is submitted with full documentation of where the money went

The key is that every dollar has a documented, fair-market-value purpose. The LDSS examiner reviews bank statements line by line during the look-back period. Payments to a family member with no contract, no timesheets, and no tax filings can be flagged as gifts and create penalty months.

The Maryland Dementia & Memory Care Guide includes a personal care agreement template with the required provisions for Maryland Medicaid compliance, plus a daily care log format that documents the specific services provided each day.

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