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Tax Tips for Family Caregivers

Caring for a loved one could make you eligible for deductions and tax credits

Mature woman and daughter hug sitting in living room.

Jose Luis Pelaez Inc/Getty Images

En español | As a family caregiver, you went into the job knowing it would take much of your time.

You may not have expected it to take quite so much of your money. The average family caregiver spends about $7,000 a year on household, medical and other costs related to caring for a loved one.

Fortunately, there is some light at the end of the tax year: federal tax credits and deductions that apply directly or indirectly to caregiving costs. Here are some ways family caregivers potentially can reduce their tax burden.

Tax credit for ‘other dependents'

Taxpayers have long been able to claim a tax credit for children up to age 16. Unlike a deduction, which lowers your taxable income, a tax credit directly reduces your tax bill. The 2017 federal tax law expanded the Child Tax Credit (CTC) to allow taxpayers to claim up to $500 as a nonrefundable “Credit for Other Dependents,” including elderly parents.

Under this provision, in effect through the 2025 tax year, the Internal Revenue Service allows family caregivers to claim some individuals related by adoption, blood or marriage — and even some friends — as “other dependents” on their federal tax return as long as both parties meet these IRS requirements:

• Legal residency. Your loved one is a U.S. citizen, U.S. national or legal U.S. resident and has a valid identification number — a Social Security number, Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number.

• Low income. Your loved one's gross income is not greater than that tax year's cutoff amount, $4,200 for the 2019 tax year.

• Dependence on you. Your loved one lives with you and you pay at least 50 percent of that person's living expenses, including clothing, food, lodging, medical and dental care, recreation, transportation and other necessities. Two or more people can split these expenses, but only one can claim the person as a dependent, and that person must pay at least 10 percent of the support costs. This is called a “multiple support agreement."

• Living arrangements. You may claim a friend, honorary auntie or other unrelated loved one as a dependent, but he or she must have lived with you the entire year.

• Special spousal considerations. You can claim a spouse if he or she does not file a joint return with you or files a joint return only to get a refund of income tax withheld and does not claim any other credits or deductions.

• Non-dependence. You can claim a dependent only if you are not a dependent of another taxpayer.

The IRS has an interactive tool to help you determine if a dependent qualifies you for a tax credit.

Tips for filing

• Keep detailed records. For example, create a log to show the dependent lived with you for at least half the year.

• Keep receipts and keep a written log of all related expenses. This record will ensure you don't miss any allowable deductions, and it can serve as part of your documentation if you are audited.

• Be aware that adding a dependent makes them part of your household, which could have implications in areas such as Medicaid eligibility or the cost of health insurance purchased  through the Affordable Care Act marketplace.

Bonus: Head of household status

If you are a single taxpayer, or married but living apart from your spouse, adding a dependent relative who lives with you could bump you up to head of household. The change in status raises your standard deduction for the 2019 tax year to $18,350, up from $12,200 if you are single or married but filing separately. Remember that taking the standard deduction means you can't claim any personal exemptions.

A parent does not need to live with you for you to claim head of household status. Another relative must have lived with you for at least half of the tax year.

If you use a multiple support agreement to claim your dependent, you cannot use the dependent to file as a head of household.

Deduct a dependent's medical expense

You can deduct the money you paid to cover your loved one's unreimbursed medical costs if the qualified medical expenses of everyone claimed on your taxes totals more than 10 percent of your adjusted gross income for that year and if your total itemized deductions are more than your standard deduction.

Check IRS Publication 502 to see what is and isn't deductible. Here is a sample of acceptable deductions:

  • Activities for older people with special needs
  • Acupuncture
  • Adult day care or a home health care worker if you work outside the house
  • Assisted living costs when incurred for medical reasons
  • Bandages
  • Copayments and deductibles
  • Eyeglasses
  • Hearing aids
  • Home and vehicle modifications needed for safety or mobility
  • Insulin
  • Physical therapy
  • Prescribed medicines and equipment, such as a cane or walker
  • Professional health aide costs during respite care
  • Transportation for medical appointments or services

Not deductible: Items and services that benefit the household.

Flexible spending and health savings accounts

Flexible spending accounts (FSAs) and health savings accounts (HSAs) take money from your earnings before taxes are deducted and deposit it in a medical savings plan you can use to pay out-of-pocket health care costs for yourself and dependents.

You may use one of these accounts to pay your loved one's medical bills, copays, insurance deductibles and even for some treatments that your insurance doesn't cover. However, if you pay using an FSA or HSA, you cannot take a tax deduction for that bill as a medical expense.

Child and dependent care credit

Unlike the Child Tax Credit, which confers a tax break based on the existence of a qualifying child or other dependent, the Child and Dependent Care Credit is based on money you spend to care for that person or people. You can claim a portion of up to $3,000 in caregiving costs for one person and up to $6,000 for two or more.

Oddly, given the name, this tax credit does not require that your loved one qualify as your dependent under the IRS definition of the term. But the IRS has rules for when you can claim it. Among them:

• Cohabitation. The person you are claiming the credit for must have lived with you for at least six months during the tax year.

• Dependency. The person is your dependent under IRS rules or could be except for having gross income higher than the allowed maximum, which is $4,200 in the 2019 tax year, or filing a joint tax return with a spouse that year.

• Incapacity. The person is physically or mentally unable to care for himself or herself.

• Necessity for employment. You pay an adult day care program, child care program or a home health worker to assist your loved one so you can go to work or look for work.

• Spousal qualifications. If you are married, your spouse also must work, be a student or be disabled for you to qualify for this credit.

If you plan to claim any of these credits or deductions, be sure to outline all of your costs and get someone to help you with your taxes, says Lynnette Lee-Villanueva, vice president of AARP Foundation Tax-Aide, a free tax-preparation service staffed by AARP volunteers. Tax-Aide has more than 5,000 sites nationwide that are open annually during tax season and provides an online site locator to find one near you.

This article, originally published December 15, 2017, has been updated to reflect tax laws and policies for the 2019 tax year.
 

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