Judi Hasson is a journalist who writes about health care and senior issues.
Say you've taken care of your elderly mom in your own home for the last two years and opened up your wallet to pay for the costs. You may be surprised to learn that many of these expenses can be claimed as tax deductions. (Always consult a tax adviser to be sure.)
“Sometimes, caregivers are too tired or overwhelmed to educate themselves about the tax aspects of their caregiving arrangement. Caregivers may have a heart of gold, but they need to care of themselves and their own affairs so they can continue taking care of others,” advises Lucinda Weigel, CPA, EA at Ross & Moncure, Inc. in Alexandria, VA.
Weigel shares 6 tax tips for caregivers to consider this year, based on frequently asked questions. The list:
How does a relative qualify to be a dependent on your tax return?
- The person must be your relative, either by blood, adoption or marriage (in-laws are relatives, too!)
- They had less than $4,050 in gross income for 2016. Ignore Social Security benefits and tax-exempt interest when making the calculation.
- You provided more than half of their support during the year. Support includes things like food, housing, clothing, medical care, transportation, and other necessities of life.
Parents don't need to live with you in order to be your dependent. This allows many people who are footing the bill for their parents' home care or assisted living expenses to claim the parents as a dependent even though they are not living under the same roof.
When can a caregiver claim a tax benefit for a dependent's medical costs?
Medical expenses are deductible when they exceed 10% of adjusted gross income (AGI) for most people, 7.5% if the taxpayer or spouse was age 65 or older. That's a high hurdle for most folks, and for 2017 and later it will be 10% for everyone, regardless of age.
Are caregiver tax deductions limited to just relatives?
No, but the bar is higher if they're not related. In addition to meeting the gross income and support tests, a non-relative would need to live with you for the entire year in order to be a dependent on your tax return. Temporary absences are allowed (a hospital stay or period in a rehab center, for example), as long as the person is reasonably expected to return to your home.
What kind of tax benefits are available for dependent care expenses ?
A dependent care credit can help with the cost of hiring someone to look after your dependent while you work if that person is physically or mentally unable to care for himself. Up to $3,000 of expenses for one dependent ($6,000 for two dependents) can be applied toward the credit, but you cannot “double dip” and use the same expenses that were reimbursed by your dependent care FSA.
What happens when more than one sibling wants to take the parent as a dependent on their tax return?
The siblings can decide among themselves who claims the parent as a dependent as long as each of them provides more than 10% of the parents support, together they provide more than 50% of the parents support, and no one person provides more than 50% of the parents support. The arrangement, known as a multiple support agreement, is formalized on Form 2120 and filed with the tax return of the person claiming the dependency exemption for that year.
This kind of arrangement allows siblings to take turns claiming the parent as a dependent. A good strategy is when the siblings figure out who will get the greatest tax benefit from claiming the parent, and that person splits the tax savings with the other supporting siblings.
Can caregivers use their flexible spending accounts to pay for a relative's eligible medical expenses?
Absolutely! FSA funds can be used to provide qualifying medical services to your dependents.
Medical expenses obviously include doctors, hospitals, lab fees, and prescription drugs, but they can also include a wide variety of other costs. If the doctor prescribes a seat-lift chair or special mattress (such as for someone with arthritis or a back condition), those costs may be deductible as well. Some types of in-home care are deductible as well, but the rules are very specific so ask your tax advisor if your situation qualifies.