Caregiving can be a little too difficult sometimes—and when you add taxes in the mix, it is sure to get even more complicated. Learning tax planning from the very start gives you an advantage when you reach your senior age, but what if you’re the family caregiver and you have to take care of an elderly loved one?
Family caregivers usually spend upwards of $7,200 a year on medical, housing, and other costs as they care for senior members of their families. It’s a good thing, however, that they can reduce their tax burden at the end of the tax year with tax credits and deductions that directly or indirectly apply to the cost of caregiving.
Tax time always comes with a lot of requirements, rules, exemptions, and exceptions which may cause enormous amounts of confusion. Below, we answer the questions that caregivers ask most.
Tax FAQs From Caregivers
Can I claim my aging parent as a dependent on my tax return?
If you are the caregiver of an elderly member of your household, you may claim them as a dependent on your income taxes. However, you must meet the following five criteria to qualify:
- Your elderly loved one must be related to you. Therefore, elderly parents, stepparents, and in-laws can be claimed. Take note, however, that the IRS does not count foster parents as relatives. They will only allow this if the foster parent has lived with you for a year or more as a member of your household.
- Your elderly member of the household must be either of the following: a U.S. citizen, U.S. national with a social security number, or a resident alien. Part-time residents of Mexico or Canada have exceptions, but you cannot claim relatives living in other countries.
- Seniors can’t file a joint return even if they are married. To qualify, they must file separately. If your relative files a joint return exclusively for a refund, however, you can still claim them as a dependent.
- Your relative’s gross income must be less than $4,300, excluding Social Security payments or other tax-exempt income.
- You must be providing more than half of your relative’s support. This includes senior living expenses, medical and dental care, clothing, food, transportation, lodging, and recreation.
Is there any way I can deduct care expenses if I can’t claim my relative as a dependent?
You may still be able to deduct care expenses but only if these make up over 7.5% of your annual taxable income. To deduct medical expenses, you must still provide 50% of your elderly relative’s care all year round.
Medical expenses that can be deducted are the following:
- Prescription drugs or insulin
- Dental treatment including x-rays, oral surgery, and fillings
- Nursing services
- In-home medical equipment
- Transportation to medical appointments
- Surgeries or other in-patient procedures
- Long-term care including housing, personal costs, and food
Can I file as head of household?
You may do so only if you meet the following criteria:
- You are either unmarried or “considered unmarried” at the end of the year.
- You may claim your parent or relative as a dependent based on the above criteria. They don’t have to live with you fill-time.
- You paid more than half of the cost of household expenses for your parents for the entire tax year.
My parents give me money to offset their care costs. Do these count as taxable income?
Any amount your parents give you to offset their expenses is not taxable to you. If you cash their Social Security benefits and use that to pay for care, these are not taxable to you as well.
This may affect claiming your parent or relative as a dependent, however. Remember that you still have to cover 50% of their care costs independently.
Tax Tips for Caregivers and Elderly Relatives
To ensure a smooth tax-filing process, here are some tips to keep in mind.
- Round-Up Your Records. Gather all necessary documents when filing your taxes. These include receipts, canceled checks, and other forms and records that support income or the deductions you are claiming on your return.
- Organize, organize, organize. With all the documents you have to keep track of, make sure that you’re keeping them in a file folder to stay organized. You can even employ the help of an online program. Here is a list of things to be particularly wary of:
- Bank statements
- Payroll stubs
- Pension, benefit, and annuity statements
- Caregiving expense receipts
- Dividend distribution and gain and loss statements
- Real estate transactions
- 1099 forms
- W-2 forms
- Do it electronically. According to the IRS, E-file is the safest and easiest way for you to submit your individual tax returns. It’s more efficient than filing it by mail. On top of that, tax preparation software lets you review everything before submission.
- Review thoroughly. Don’t rush any part of this entire process because even the tiniest of errors will slow you down. Be sure to double-check all the information and details such as social security numbers and income amounts before filing. You can even opt to let a tax professional look over your work.
Caring for an elderly loved one is admirable with the amount of patience and determination you need to have to be there for them—all while looking out for your finances and taxes. If you need tips and recommendations on giving the proper care for your loved ones, check out our Caregiver’s List of Virtual Resources for Older Adults.