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The Dos and Don’ts of Crowdfunding for Caregiving

What you need to know before asking for donations

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It’s become a familiar sight on social media: A family member or friend is going through a crisis and a request pops up to donate to a crowdfunding site — like GoFundMe, Kickstarter or YouCaring — to help them out. Financially strapped caregivers are turning to this kind of online fundraising more and more when their personal or medical expenses and debts become too much to manage. Over the years, I’ve seen different social and professional circles of mine generously donate to families in their time of need.  

Crowdfunding wasn’t around when I first became a caregiver, but if it had been, it could have been a lifeline for me in the darkest of times. I financially struggled as a caregiver, first by the reduction of income for having to work a lesser schedule and then by losing my job when my medical leave expired. My mother’s medical expenses were significant and we paid out of pocket for her nursing home. We were both too middle-income and too young to qualify for assistance.

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Caregiving is expensive. Family caregivers typically spend over $7,000 of their own money on care-related expenses annually. On average, family caregivers spend 26 percent of their income on caregiving activities. An AARP research study found that about half of caregivers report experiencing financial setbacks. This may mean they have had to curtail their spending, dip into personal savings or cut back on retirement contributions. It’s no wonder that many are asking for donations to help with the financial strain.

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If you’re considering starting a fundraising campaign to help you and yours in your caregiving journey, there are things you’ll want to think about before you get it started. 

Determine who will receive the funds

First, you’ll need to decide who will be the beneficiary of the campaign: you or your care partner. If you are raising funds to help with your lost income from caregiving or increased household expenses, then the campaign benefits you. If you are raising funds to help with your care partner’s out-of-pocket expenses, medical debt or other needs, then the campaign benefits your care partner. (Reminder: Be aware of fees charged by the crowdfunding platform. They may be significant.)

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.
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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.

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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.  

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