If you serve as a caregiver for a family member, you are probably spending a great deal of money out-of-pocket, in addition to sacrificing a substantial amount of your time to care for your loved one. Many caregivers spend more than $5,000 a year for their loved ones, without reimbursement from Medicare or insurance.
You can get some financial benefits for caregiving in the form of tax breaks. Here are some tips on what family caregivers need to know about taxes.
Claiming as a Dependent
Many people think that only minor children can be dependents for purposes of income taxes, but that is not the case. If both parties meet the guidelines, the Internal Revenue Service (IRS) can allow caregivers to claim people related by blood, marriage, or adoption as dependents. Depending on the facts of the situation, you could even claim a friend as a dependent. Be aware that claiming someone as a dependent can affect Medicaid eligibility and household health insurance costs purchased through the Marketplace.
This type of dependent can give you a $500 non-refundable tax credit. This benefit is not a deduction, so it does not lower your taxable income. Instead, the IRS will deduct the $500 directly from the taxes that you owe.
Make sure that you keep all of your receipts throughout the year. You should also keep a record of all related experiences incurred on behalf of the dependent. You might have to keep track of the dates the dependent lived with you, to show that the person was with you for at least half of the year.
Head of Household
If you add the person for whom you serve as caregiver as a dependent, and that person is related to you and lives with you, you might qualify for head of household status. This taxpayer status gives you a higher standard deduction. You might not, however, be able to claim any personal exemptions.
Your related dependent must live with you for at least half of the year. The exception is if you serve as the caregiver for your dependent parent. Your dependent parent does not have to live with you for you to be eligible for head of household taxpayer status.
Dependent Medical Expenses
You might be able to deduct some of the expenses that you paid without reimbursement for your dependent. The rules on tax deductions are changing every year, so you should check with the IRS and your tax advisor to find out if a particular expense is deductible and whether you meet the additional qualifications to take the expense off of your taxes.
Do Not Double Dip
If you use a flexible spending account (FSA) or health savings account (HSA) to pay out-of-pocket medical expenses for your dependent, you are not allowed to also take a deduction for those costs on your tax return, because these accounts contain pre-tax dollars. Sometimes people use these accounts to pay for the dependent’s medical expenses, insurance deductibles, co-pays and approved treatments that insurance does not cover.
This article does not give tax advice. You should always consult with your tax advisor about tax issues.
AARP. “Tax Tips for Caregivers.” (accessed March 13, 2019) https://www.aarp.org/caregiving/financial-legal/info-2017/tax-tips-family-caregivers.html