The Dos and Don’ts of Crowdfunding for Caregiving

Be aware that the money raised may create a tax liability. Federal tax law says that gross income includes all income from any source unless the law has an exclusion for it. If you receive a gift, that gift is generally not included in your gross income for tax purposes. With crowdfunding, the IRS says:

• If a crowdfunding organizer is raising money on behalf of others, the money may not be included in the organizer’s gross income, as long as the organizer gives the money to the person for whom they organized the crowdfunding campaign.
• If people donate to a crowdfunding campaign out of generosity and without expecting anything in return, the donations are gifts, rather than charitable donations. Therefore, they will not be included in the gross income of the person for whom the campaign was organized.
• However, not all contributions to crowdfunding campaigns are gifts, and some may be taxable.
• When employers give to crowdfunding campaigns for an employee, those contributions are generally included in the employee’s gross income.

The crowdfunding site or payment processor may have to file a Form 1099-K if the amount raised is more than $600 or if contributors to your campaign receive goods or services for their contributions. If you receive a Form 1099-K, it doesn’t necessarily mean that the amount is taxable, but the taxpayer should report the distributions from the form when they file their taxes. Consult a tax professional for advice on how to treat the amounts received and distributions made from your campaign.

Understand asset management

Be careful about increasing your care partner’s assets if they receive a needs-based public benefit, like Medicaid. Medicaid pays for health care for over 18 percent of the U.S. population; it is the primary payer for 59 percent of nursing home residents. To be eligible for Medicaid, a person has to have less than a certain amount of income and assets. Typically, this is less than $2,000 of non-exempt assets per month (some assets, like your home, are considered exempt and not counted to this number). Even if your care partner is not the one who organizes the fundraising campaign, if they’re the recipient of the fundraiser, all those generous donations could cause them to lose their Medicaid eligibility.

Donations could also be lost to creditors if the beneficiary of the fundraising campaign files or has already filed for bankruptcy. Health care costs are one of the top causes of bankruptcy filings. Money from fundraising campaigns, just like lottery winnings, can be liquidated and go to pay off creditors in a bankruptcy. If you have filed or are considering filing for bankruptcy, talk to your lawyer about your crowdfunding campaign, ideally before you start accepting donations. Remember: Failure to disclose the funds can result in a charge of bankruptcy fraud.

If the beneficiary of the account dies while the fundraising account is open, you will need to have a plan of what to do. You will want to know how the crowdfunding platform you choose handles their accounts when the beneficiary dies. GoFundMe, for example, can transfer the fundraiser to someone else, end the fundraiser or potentially refund all donations. Having a will or trust that directs where any assets should go is part of good planning. But know that if that money goes into an estate, it is up for grabs to pay back creditors. In that case, it may be worthwhile to refund the unused donations.

Finally, as you should with all money management in caregiving, keep good records of the crowdfunding account. The IRS recommends keeping records about the campaign and how the funds were used for at least three years.  

A little bit of homework and planning can help make sure you maximize the donations and use them to help where they’re needed most.