If you are a senior receiving care or are caring for an older relative, you may be eligible for additional tax deductions and credits. Examples of elder care tax benefits include claiming a parent, stepparent, father-in-law or mother-in-law as a dependent on your tax return or deducting contributions you made toward your aging relative’s medical expenses.
A number of senior medical expenditures are deductible including home care, hospitalization, dental treatments and transportation to medical appointments. For a comprehensive list of qualifying medical expenses, check Internal Revenue Service (IRS) Publication 502 (2015), Medical and Dental Expenses (https://www.irs.gov/publications/p502/). Certain home modifications such as adding ramps and handrails also may count toward tax savings.
To help verify your eligibility for tax credits, caregiver and medical expense tax rules require several qualifications including the following:
- Both care recipient and caregiver must be a United States citizen, natural, or resident of the U.S., Canada or Mexico.
- Medical and dental costs for both you and your spouse/dependent care recipient must total 10 percent of your adjusted gross income (or 7.5 percent if either party was born before January 2, 1951). Using the 7.5 figure, a caregiver with an annual income of $50,000 could receive deductions after paying $3,750 in medical bills.
To claim an elderly parent as a dependent, the IRS requires that the parent meet the following four criteria:
1. Not a qualifying child: This point is a nonissue if a son or daughter is claiming an eligible parent as a dependent. A qualifying child dependent has its own set of IRS requirements.
2. Member of household or relationship: A son or daughter as the caregiver meets the relationship requirement. A caregiver and parent do not need to live with one another to qualify. A caregiver’s parent living alone or in a care facility may still qualify as a dependent as long as the other criteria are met.
3. Gross income: Each tax year, the IRS sets a maximum income and exemption amount to qualify as a dependent parent. Typically, the income limit does not include disability or Social Security payments, but there are exceptions. Income from interest and dividends or withdrawals from retirement plans and pensions count toward a parent’s income total. Check IRS Publication 501 (2015), Exemptions, Standard Deduction, and Filing Information (https://www.irs.gov/publications/p501/) for current exemption amounts.
4. Support: The caregiver must have covered more than half of the parent’s expenses during the tax year. Food, clothing, utilities and general living expenses should be part of the calculation. If the parent occupies a room in the family caregiver’s home, factor in the cost of rent that could be charged for the space. If multiple siblings support the same parent, the combined support may count as part of the 50 percent of the parent’s annual expenses. But on tax returns, only one family member can take the exemption for the parent. For more information, refer to IRS Form 2120, Multiple Support Declaration (https://www.irs.gov/uac/About-Form-2120).
Other important deductions to consider are the premiums paid for long-term care insurance and the costs of long-term healthcare. Qualifying long-term care services include prescribed preventive, diagnostic, rehabilitative and personal care treatments for a chronically ill person. In many cases, family caregivers can use their employee tax-free flexible spending account to pay for medical expenses of both dependent and nondependent relatives as long as the caregiver is responsible for more than half of the relatives’ support.
In addition to federal tax benefits, state governments often offer tax credits and deductions for caregivers. To receive the maximum tax savings related to receiving or extending care, it’s important to consult a professional tax advisor or an elder law or tax attorney. Also be sure to note updates and changes to tax rules and qualifications each tax year.
For free tax consultation services, the IRS provides a resource list on the IRS.gov website. The Volunteer Income Tax Assistance (VITA) program offers complimentary tax help for the elderly, disabled, limited English-speakers and those who make $54,000 or less.
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An award-winning journalist who has documented stories in nearly 20 countries, Beth Lueders is an author, writer and speaker who frequently reports on diverse topics, including aging and health issues for both U.S. and international corporations.