Tax Tips for Family Caregivers

As a family caregiver, you probably expected caregiving would take up a lot of time, but you probably didn’t expect it to take a lot of your money. The average caregiver spends $7,200 a year on household, medical, and other costs associated with caring for their aging loved one.

How to Reduce Your Tax Bill

Given the high cost of caregiving, you may wonder if you can save some money on taxes. Here are some tips for family caregivers on how to reduce your tax bill to make your caregiving bill a little easier.  

Can I claim my aging loved one as a dependent?

If you’re caring for an aging loved one, you may be able to claim them as a dependant on your tax return if you meet the following six requirements:

1. Legal residency: Your aging loved one must be a U.S. citizen, U.S. national, or legal U.S. resident. Plus, they must have a valid identification number, such as a Social Security number, Individual Taxpayer Identification Number, or Adoption Taxpayer Identification Number.
2. Income: Your loved one’s gross income must be less than $4,400 for 2022. 
3. Dependence on you: You must pay for more than half of your loved one’s living expenses. This includes clothing, lodging, food, and transportation. 
4. Living arrangements: You may claim a friend, aunt or other unrelated loved one as a dependent, but they must live with you for the entire year. Close relatives such as parents, siblings, and grandparents are not required to live with you all year to meet the dependent filing status. 
5. Married dependant consideration: You can claim a dependent who is married under two conditions: they do not file a joint return with their spouse or file a joint return and do not claim any other credits or deductions.
6. Non-dependence: Your aging loved ones cannot be claimed as a dependent on someone else’s tax return. 

For more clarification, the IRS has an interactive tool to help you determine if your loved one qualifies as a dependent.

How will claiming your loved one as a dependant benefit you?

Claiming your loved one as a dependant on your income taxes can help you claim certain deductions and credits, such as head of household filing status, the dependent tax credit, or the dependent care credit.

Are social security benefits included in the gross income requirement?

Whether your loved one’s social security benefits are included in their gross income is highly dependent on their sources of income. If social security is their only source of income, their gross income is likely to be zero. However, if they receive a monthly pension plus their social security benefits, some of the social security benefits may be included in their gross income. 

If my loved one qualifies as my dependent, do I receive the dependant tax credit? 

If you claim your loved one as a dependent on your tax return, you may qualify for a $500 tax credit. Be aware that your tax credit may be reduced if your income is over $200,000 filing single or $400,000 for married filing jointly. 

What if I share financial support for my loved one with my siblings?

If you and your siblings collectively provided more than 50% of parent(s) support in 2022, the sibling who paid 10% or more will qualify for a joint exemption. Siblings must sign and file the Multiple Support Declaration with their tax returns.

What health care expenses can I deduct if my loved one qualifies as a dependent?

You can deduct the money you paid during the tax year to cover your loved one’s medical expenses under three conditions:

• The medical expenses must be unreimbursed; this implies that medical expenses can’t be covered by their health insurance
• Medical expenses should add up to be over 7.5% of your adjusted gross income for that year 
• Your itemized deduction must be more than the standard deduction to count

Check IRS Publication 502 to check to see what medical expenses are deductible. Some of the deductions include:

• Acupuncture
• Adult daycare
• Assisted living costs
• Eyeglasses
• Hearing aids
• Home and vehicle modifications 
• Insulin
• Transportation for medical appointments or services

Need more clarification about which expenses are tax-deductible? Book a free appointment to review your current situation and possible tax deductions. 

Can I file as head of household if I take care of an elderly relative?

If you are a single taxpayer or are considered unmarried during the tax year, adding your aging loved one as a dependent can move you up to the head of household. This change in filing status raises your standard deduction, meaning your taxable income gets reduced.

Similar to filing someone as a dependent, parents do not need to live with you to qualify for the head of the household status. However, they must be claimed as your dependent. If you file a multiple support declaration, you cannot file as a head of household.

What is the dependent care credit?

Unlike the dependent tax credit, the dependent care credit is based on the money you spend to take care of your loved one. This tax credit allows you to reduce your taxes based on your income and caregiving costs. In the 2021 tax year, family caregivers could claim up to $8,000 in caregiving costs for one person and up to $16,000 for two or more. Luckily, the tax credit doesn’t require that your loved one qualifies as your dependent, but there are a few rules to qualify for the tax credit. Among them:

• Cohabitation. The person you are claiming the credit for must have lived with you for at least six months during the year. 
• Dependency. Your loved one must either qualify as a dependent or meet the dependent qualifications except for the gross income requirements.
• Incapacity. Your loved one is unable to physically or mentally take care of themselves.
• Necessity for employment. You pay for an adult daycare program or a home caregiver to take care of your loved one while you work or look for work.    
• Spousal Qualifications. If you are married, your spouse must be employed, be a student, or be disabled to qualify for the credit.  

Can caregivers use flexible spending accounts to pay for their loved one’s eligible medical expenses?

Yes, a caregiver can use their flexible spending account or health care spending account to pay for medical expenses that are not covered by insurance if the taxpayer is responsible for more than 50% of their care. 

If I receive money from an insurance company or state agency to care for my parent who is permanently disabled, will I owe self-employment taxes?

No, it is unlikely that you will owe self-employment taxes on the amounts received from the insurance company as long as you are not involved in the business of providing caregiving services. 

What expenses are not deductible for caregivers?

Unfortunately, you will not be will be entitled to get a tax break on every expense. For example, if you move into a relative’s home to provide care and help pay for the mortgage, you will not be able to get a mortgage interest deduction unless your name is on the mortgage. 

Tips for Tax Time

1. Keep detailed records. On a calendar, note when your loved one lived with you and which dates you transported them for medical services. Use apps like MileIQ or Stride to track your mile to and from appointments.  
2. Keep receipts of all the expenses you paid for by putting all your receipts in a folder or by taking a photo of every purchase. 
3. Be aware that adding a dependent makes them part of your household for government benefits like Medicaid. 

This article reflects the insights and opinions of its author and is not a recommendation or endorsement of their views or services.