Caregivers and Tax Credits
As the adage goes, there are only three certainties in life: birth, death, and taxes. For most people, personal income tax starts and ends with the money they make at work, but for caregivers, the situation may be radically different. If you are caring for a friend, parent, sibling, or other senior family member, you may be able to recoup expenses and save money while supporting your loved one.
Caregivers in the United States
While some caregivers in the U.S. are indeed professionals, many seniors in need are cared for by their children, friends, siblings, or other family members. These individuals don't get paid for their love and support, and they don't hold professional licenses in nursing or any other medical field. They simply provide care out of the goodness of their hearts, performing duties as a labor of love rather than a paying job. In fact, serving as a caregiver may even cost money: the average caregiver spends around $5,500 a year on food, drinks, clothing, gas, and other out-of-pocket costs that may prove burdensome over the long run.
As the Baby Boomer generation ages, the number of caregivers in the United States has only grown. As of 2015:
- An estimated 43.5 million adults provide unpaid care of some sort to an adult or needy child and, of these, 34.2 million care for an adult aged 50 or older. Nearly half of caregivers care for those 75 and older.
- 60% of caregivers are female, while 40% are male – an increase over past years.
- 85% of caregivers provide care for relatives, with 49% caring for a parent or step-parent.
- Caregivers of adults have been in their role for an average of four years, with 24% serving as a caregiver for five years or more.
- The average caregiver spends 24.4 hours a week providing direct care – the equivalent of a part-time job. Six in 10 caregivers must make a workplace accommodation in order to work around caregiving responsibilities.
- 40% of caregivers report a high burden of care.
- The estimated economic value of care provided by unpaid caregivers was estimated at $470 billion in 2013, up from $450 billion in 2009.
As illustrated, the time, energy, and financial burden that goes into caring for a loved one can be immense. Many caregivers struggle to make ends meet while still providing adequate care, creating a challenging situation for those without other forms of financial support. In these cases, the tax benefits available are very valuable, helping those offering indispensable care to save money each April 15th.
Tax Breaks for Caregivers
The passage of the Tax Cuts and Jobs Act on December 19th, 2017, created a significant upheaval in the American tax system, providing the first major structural change in decades. Some adjustments will benefit caregivers but others will not, so it is important to understand the current benefits as well as the changes to benefits many caregivers previously enjoyed.
The Elimination of the Personal Exemption
As of the 2018 tax year, taxpayers should be aware that claiming a qualified friend or family member will no longer result in the ability to take a personal exemption, valued at $4,050 in 2017. The new tax plan eliminates the personal exemption entirely, replacing it with a lump sum standard deduction that is based on filing status, not family size.
However, the Act does not do away with the ability to claim those receiving care as dependents if all rules are met. As a caregiver, your parent or loved one may qualify if he or she:
- Is a relative as defined by the IRS, or a non-relative who has resided with you for at least six months
- Makes less than $4,050 (in 2017), not including Social Security or disability
- Is unable to pay over 50% of personal living expenses
- Can't be claimed as a dependent by anyone else
While the personal exemption no longer applies after 2017, a $500 credit is available starting in 2018 for non-child dependents intended specifically to assist those caring for disabled or senior family members.
Current Caregiver Tax Advantages
In addition to the $500 credit, claiming a qualifying relative as a dependent does provide other benefits of which taxpayers can take advantage. The Tax Cuts and Jobs Act does not do away with the ability to claim medical expenses incurred by dependents on Schedule A. Previously, expenses that exceed 7.5% of Adjusted Gross Income (AGI) were permitted; as of 2018, this 7.5% floor remains in effect. If, for example, your household AGI is $100,000 and medical expenses total $12,500, $5,000 of this amount is deductible.
Per the 2017 edition of IRS Publication 502, medical expenses include “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.” Unfortunately, these expense deductions do not extend to any non-medical forms of care, like food, clothing, shelter, or transportation expenses.
State Tax Credits
Taxes don't just apply on a federal level; in 43 states throughout the nation, taxpayers are also subject to state and local taxes. In order to relieve these burdens, many states provide special credits specifically for caregivers. For example, Georgia offers a Qualified Caregiving Expense Credit that permits the deduction of 10% of the cost of providing care up to $150. Before filing, check with your state tax board to explore options that may be available to you.
Deductions for Professional Care
If you are unable to provide full-time care on your own and require professional assistance from time to time, these costs may qualify you for an additional credit. The Child and Dependent Care Credit can be claimed on Form 3506 and is designed to help families in need provide care for children and other dependents in order to work or look for work. This credit is valued up to $3,000 for one dependent or $6,000 for two or more dependents. General home care is not permissible, like paying a housekeeper to clean up or run errands, but options like home care nurses or adult daycares are included.
Providing care for a friend, family member, or loved one is among the most selfless possible acts. The tax benefits available from both federal and state governments can ease the associated financial stressors, making your role as a caregiver a little easier to manage.