Updated March 2021
If you’re new to family caregiving, you may not be aware of two important tax benefits for caregivers:
- Deductions for Medical and Dental Expenses
- The Child and Dependent Care Tax Credit
Like any great opportunity, some rules apply:
Claiming an Elderly Parent, Spouse or Other Relation as a Dependent
Before you can take advantage of these deductions and credits, the person in your care must qualify as a dependent. The IRS has very specific criteria that you and your relative must meet, including:
Neither the taxpayer nor the care recipient can be claimed as dependents of other taxpayers. This includes your spouse if filing jointly. Your loved one must also be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada, Mexico, the Canal Zone or the Republic of Panama.
Relation to Dependent
You can claim your parents, stepparents, grandparents, other direct ancestors and even your in-laws – whether or not they live with you. Cousins, foster parents and other seniors meet the standard only if they live with you all year as a member of your household.
Dependent status is established if your loved one’s annual gross income was below $4,300 (excluding Social Security and pension payments) and if you paid more than half of your parent's support for the calendar year.
The full set of conditions is laid out in IRS Publication 501. The document includes “tests” to help you determine dependent eligibility. For a definitive decision, consult a tax expert.
Tax Tips for Caregivers
Once you claim your loved one as a dependent, other tax breaks become available. To benefit from the dependents tax deductions and the elderly dependent care tax credit, you need careful accounting and documentation of expenses you paid for your dependent. This is especially important if more than one person is contributing to your loved one’s care. Knowing who paid what is critical to determining who’s eligible to claim the dependent.
Many out-of-pocket medical, dental and related costs can be deducted from your tax bill, including:
- Care provided by doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
- Home health visits
- Inpatient hospital and residential facility care
- Prescription drugs
- Some home medical equipment and renovations
Claim the Tax Credit for Elderly Parents and Others Living with You
The Child and Dependent Care Credit allows you to write off care expenses if you have to pay someone to watch your loved one while you work. To qualify, you (and your spouse if filing jointly) must have earned income. This means that you work for someone else or are self-employed.
Additionally, the care recipient must be unable to safely care for themselves – and have lived with you for at least half a year. The total expenses used to calculate the credit may not be more than $3,000 per dependent. Expenses are eligible if the primary reason the purchase was made was to ensure the individual's well-being and protection. IRS Publication 503 includes more detailed explanations and “tests” to help you determine eligibility. A tax pro can confirm your calculations.
Tax issues can be complicated, and many of us feel anxious about making a mistake or overwhelmed by the requirements. But figuring out dependent status and calculating credits and deductions can help lower the emotional and financial costs of care.
This information is not intended as a substitute for professional financial, accounting, tax or legal consultation; it is provided “as is” without any representations or warranties, express or implied. Always consult professionals when you have specific questions about any financial matter.