Tax credits and deductions for caregivers.
Several federal tax provisions can reduce your tax bill when you're caring for a family member. Most caregivers don't claim them, usually because they don't know they qualify.
The main ones to know about
Credit for Other Dependents ($500 per qualifying person)
If you provide more than half of the financial support for a family member and they meet certain income and residency tests, you may be able to claim them as a dependent and receive a nonrefundable $500 credit. The qualifying relative doesn't have to live with you, but their gross income for the year must be under the IRS threshold (which adjusts yearly).
Medical expense deduction
You may be able to deduct unreimbursed medical expenses for a dependent, including yourself, your spouse, and qualifying family members, that exceed 7.5% of your adjusted gross income. Eligible expenses for caregivers can include:
- Doctor visits, prescriptions, medical supplies
- Long-term care services that are medically necessary
- Modifications to a home for medical reasons (ramps, grab bars, etc.)
- Transportation costs to medical appointments
- Some in-home aide costs (if for medical care, not just companionship)
Dependent Care Credit
A credit (not just a deduction) for amounts you pay so you can work, covering care for a dependent who can't physically or mentally care for themselves. Usually associated with childcare, but it can apply to adult dependents who live with you and meet specific tests.
Flexible Spending Account (FSA) for dependent care
If your employer offers a dependent care FSA, you can set aside pre-tax dollars (currently up to $5,000/year per household) to pay for adult day care or in-home aides while you work. Significant tax savings if you're in a higher bracket.
IRS Notice 2014-7 (live-in family caregivers)
If you receive Medicaid payments as a caregiver for a family member who lives in your household, those payments may be excluded from federal income tax. This is a major exemption for live-in family caregivers being paid through Medicaid self-directed care.
What to do
- Keep records all year: medical receipts, mileage to appointments, prescription costs
- Get IRS Publication 502 (Medical and Dental Expenses) and Publication 503 (Child and Dependent Care Expenses)
- Consider hiring a tax professional for the year you start providing significant care, the consultation fee often pays for itself
- Look into your state's tax provisions too, some states have additional caregiver credits