The cost of hiring a caregiver from a home health agency has been rising In the aftermath of the U.S. Department of Labor’s repeal of the companion care exemption for third party employers, which went into effect last October. As a result, financial advisors can expect more clients to ask how to privately employ home health workers to assist with aging parents stricken with Alzheimer’s, dementia or other debilitating ailments.

“More families are looking to privately employ caregivers in order to save money but many are challenged by tax and legal compliance for household employees and are seeking the help of financial advisors,” said Tom Breedlove, director of HomePay, a national household employment specialist serving private individuals and financial planners.

The average cost of a home health aide is $45,760 a year compared to $43,200 for residency in an assisted living community, according to Genworth’s 2015 Cost of Care Giving Study.

Depending on the state, families with care needs of 60 hours or more can expect to save up to $15,000 in New York and even more in other states through private employment versus hiring through a home health agency, according to Breedlove, who was co-leader of a panel called Alzheimer’s Disease & Dementia: Responding to the Rising Cost of Care at the Financial Planning Association of New York’s Spring Forum last week.

“Family members often jump in but are not prepared to care or pay for care,” said Jody Gastfriend, vice president of senior care for, a website that helps families find caregivers for children, the elderly and pets. “There are a lot of surprises when it comes to elder care and making decisions.”

State specific labor laws and IRS withholding requirements for household employment are among the surprises families face when they privately employ a caregiver.

“What’s confusing to a lot of families is that IRS Publication 926 says income tax withholding is optional but that doesn’t apply to payroll taxes or FICA,” Breedlove told Financial Advisor magazine. “Income tax withholding refers to federal and state taxes only.”

When a family employer doesn’t withhold payroll taxes, social security and medicare from an employee’s wages, the family employer then becomes obligated to pay it on behalf of the worker.

“That’s 7.65% of their pay that you are supposed to withhold like every employer does,” said Breedlove. “The private employer also must attach a Schedule H for household employment taxes to their own 1040 and provide a W-2 to the caregiver as well as file it with the Social Security Administration.”

There are also state labor law requirements, such as minimum wage, paid sick leave, paid time off and overtime standards. Although workman’s compensation insurance is not required for employees who work less than 40 hours a week, it can be an area of exposure.