Your Caregiver Tax Credit Questions, Answered
While most families anticipate and accept the costs of providing care, many aren’t aware that there are tax breaks for family caregivers that could help lighten the burden.
To Your Credit: Tax Breaks Aren’t Why You Provide Care
Family caregivers know they’re taking on a lot of work, and they certainly don’t do it for any incentives from the IRS. That doesn’t mean you don’t deserve the caregiver tax deductions you qualify for.
In most cases, you’ll need to claim your loved one as a dependent and include relevant income and expense information to claim the tax discounts.
Can you claim an elderly parent as a dependent?
Yes! While some requirements must be met to claim a parent or family member as a dependent, it’s easy to see who qualifies. The IRS offers a tool to help determine dependency status.
Prepare to file by gathering your family member’s tax, income, and financial records, including:
Income. Your loved one’s gross adjusted annual income cannot exceed $4,400 to qualify for the Child Tax Credit or credit for other dependents.
Resident status. You must show your family member is a legal U.S. citizen, national, or resident alien to claim any tax credits.
Financial dependence. You must pay 50% or more of the dependent’s living expenses, including lodging, food, and medical costs. Cohabitating adults can split expenses, but only one can legally claim the other in a tax filing.
Living situation. Caregivers can only claim their elderly dependent if they’ve lived with them for a portion of or for the full tax year, depending on that year’s requirement.
Marital status. Married seniors cannot file as dependents if they file jointly. In most cases, elderly married couples should file jointly, but talk to a certified accountant to determine the best filing status for your situation.
There are two tax credits for taking care of elderly parents (or children) in need of home care:
Together, there are two tax credits available to many who provide home care, totaling up to $1100. Both require claiming the elderly parent as a dependent on your taxes.
Up to $500 for the Child Tax Credit (CTC) or its counterpart, the credit for other dependents
If you provide home care for a child under 17, the CTC allows you to receive a tax credit of $500. If you provide home care for a parent or other adult whom you claim as a dependent, then you can receive the $500 credit through the companion “credit for other dependents” benefit.
Note: Since this is a tax credit, it lowers the taxes you owe by $500. (If you receive a refund on your taxes, the refund will be $500 greater.) Make sure your loved one can be claimed as a dependent before making your claim.
Up to $600 via the child and dependent care credit
If you hire professional home care services for a child or aging parent who needs home care so you can work, the child and dependent care credit allows you to claim 20% of expenses up to $3,000. The specifics can vary by tax year, but in this example, 20% of $3,000 is $600.
Are Caregiver Expenses Tax Deductible?
Most unreimbursed medical costs are tax deductible if they exceed 7.5% of your household’s adjusted gross income. The IRS notes what expenses are deductible, but many common care costs are included:
- Home care expenses (you may need to prove you work outside the home and therefore cannot provide full-time care yourself)
- Assisted living costs
- Hearing aids
- Physical therapy
- Medication and medical equipment
- Transportation costs for appointments
Are assisted living expenses tax deductible?
Many assisted living costs are tax deductible, but not all. Room and board costs aren’t deductible unless round-the-clock care is medically required. Non-medical residency can still benefit from tax deductions linked to medical care, like medication management. You may need to work with your assisted living community to create a detailed, itemized list of services that qualify.
Is home care tax deductible?
Many home health care services, like physical therapy and nursing, are tax deductible. Depending on the situation, you may need to prove your family works with a trained medical professional or licensed company. To qualify as a deduction, care costs must exceed 7.5% of your adjusted household income.
Tax Prep Tips for Caregivers
Save yourself time and stress by preparing for tax season all year long. When in doubt, consult a tax professional to identify and claim all the credits and deductions you‘re eligible for.
- Keep track of expenses. Track and record medical and transportation costs all year long. Consider using a dedicated credit card or bank account to separate personal and caregiving expenses.
- Take notes. Keep records of when your loved one moved in to establish residency. Use change of address and medical billings to support your tax claims.
- Ask questions. You don’t need to know it all. Check with your tax expert to learn what does and doesn’t qualify as a tax deduction.
You Don’t Have to Do It Alone
From tax credits to care questions, you don’t have to do this yourself. We take pride in providing exceptional care to clients and their families as they navigate the unfamiliar world of home care costs and choices. With locations across the country, we’re always ready to help. Schedule an appointment or call 888-404-5191 to learn more.