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Caregivers and Tax Credits

Chris Hawkins Written by Chris Hawkins
SeniorLiving.Org Expert on Senior Care & Assisted Living

A senior caregiver can be any number of professionals from registered nurses to speech pathologists to home aides. But the majority of caregivers in the U.S. aren’t professionals—at least they don’t get paid and aren’t licensed.

Caregivers and Tax Credits

These caregivers are spouses, family members, friends and neighbors. Their work is a labor of love and usually a necessity.

And on top of their labor, unpaid caregivers spend an average of $5,500 a year out-of-pocket providing care.

You may, however, be entitled to a tax credit for the care you provide and for medical expenses you pay for. And if you hire a professional caregiver, even just for respite care, you may be able to deduct these expenses.

Caregiving Facts

The number of unpaid caregivers has exploded in the last 25 years. From 1994 to 2008, the percentage of men taking care of an aging parent went from 3% to 17% ; the percentage of women went from 9% to 28%, according to a MetLife study.

Let’s look at some caregiving numbers.

  • Up to 7 million family, friends and neighbors provide care to a person 65+ who needs help with activities of daily living (ADLs) such as dressing, eating, grooming, toileting, etc.
  • 8.9 million informal caregivers provided dementia care to someone 50+.
  • About 78% of adults who need long-term care rely on family and friends as their sole source of help.
  • Your cost of lost wages as a caregiver is estimated to be $109 a day.
  • The value of unpaid caregivers’ (you) was about $450 billion in 2009 compared with $375 billion in 2007.

Federal Tax Breaks for Caregivers

If you are providing care for a loved one (mom, dad, brother, sister, step-dad, et al.), you may be able to claim them as a dependent and reduce your taxable income by $3,700 if:

  • They are a relative (living at home or on their own).
  • They are a non-relative who has lived with you for more than half the year.
  • Your loved one’s gross income is less than $3,700 not including Social Security and disability payments.
  • You are paying more than half of their expenses.
  • They can’t be claimed as a dependent by anyone else.

To see the details of this potential deduction, search on the IRS’s website for Publication 503,

Claiming Medical Expenses

In addition to the care tax credit, you may be able to claim medical expenses for your spouse or qualifying dependent. Using Form 1040 Schedule A, you can deduct expenses that are more than 7.5% of your Adjusted Gross Income (AGI).

For example, your AGI is $75,000. So 7.5% of $75,000 is $5,625. The medical expenses you paid were $7,500. You could claim/deduct the difference: $7,500 - $5,625= $1,875.

IRS Publication 502 defines medical expenses as “payments for legal services rendered by physicians, surgeons, dentists, and other medical practitioners. They include costs of equipment, supplies, and diagnostic devices needed for these purposes.”

See Publication 502 for qualifying persons.

State Tax Credits

A number of states offer tax deductions and credits for caregivers. For example, Georgia offers a credit of up to $150 for a “qualifying family member.” California has their “Child and Dependent Care Expenses Credit” (Form 3506).

Check your state’s revenue department to see if they offer caregiver credits.

Professional Home Care Costs & Deductions

If you want to know what it would cost to replace your caregiving, here’s a list of common in-home care practitioners and with their average hourly rates.

  • Registered Nurse $27.79
  • LPN/LVN $19.81
  • Occupational Therapist $34.13
  • Physical Therapist $37.22
  • Respiratory Therapist $23.44
  • Speech/Language Pathologist $33.65
  • Medical Social Worker $23.48
  • Homemaker Services (e.g. cooking, running errands) $18
  • Home Health Aides (assistance with ADLs) $19

Deducting the Cost of Professional Care

The good news is if you do use professional home care, your loved one (or possibly you if you claim them as a dependent) can itemize these services on Form 1040 Schedule A. The services you claim cannot be personal (running errands, housekeeping) but can include assistance with activities of daily living.

Be careful because if you pay for in-home in your house for a spouse or dependent, you may have to pay employment taxes. See IRS Publication 503 for the details.

Summary

Now that you know there are tax benefits to providing care, start searching to see if you may qualify. Start with the IRS and Publications 502 and 503.

And for more information, read “Health Care Tax Deductions.”

Sources:

AARP.com; Family Caregiver Alliance;  National Association for Home Care and Hospice; Genworth Financial; MetLife

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Comments

[1] Comment.
Diane Robinson On Jun 10, 2017

I use to live with my mother from 2005 to Feb 2017... who is now 86 years old and she wants to die in her home. I'm the only one in the family that comes every weekend to help her out, from buying house cleaners to spending two days cutting her grass, which I buy garden hoses, blades for the lawn mower, change the lawn mower oil and buy it, buy groceries so I don't eat her food... pay for her trash, which is 3.00 a black bag, which adds up to more than one bag per week.....Is there a tax credit for that? Diane

Reply:

Hi Diane!  Have you tried claiming your parent as a dependent? To apply your parent as a dependent, you should prove to the IRS that you pay more than 50 percent of your parent’s cost of living. IRS will also make you undergo some tests for you to qualify for the caregiver tax deductions. If you don’t pass the test, you can also receive tax savings if you cover your parent’s medical expenses. Based on IRS guidelines, tax deductions for caregivers are limited to medical expenses that are 7.5 percent of the caregiver’s adjusted gross income (AGI). You can check the list of possible deductibles in the IRS Form at https://www.irs.gov/pub/irs-pdf/f1040sa.pdf.