When a loved one needs additional medical support due to old age or illness, families are faced with several care options. Many choose in-home care because it allows their loved ones to remain in the comfort of their home while receiving the services they need to support their quality of life.
In-home care is typically provided by a palliative care, hospice care, or in-home health agency. A team of nurses, doctors, and other medical professionals will visit a client’s home on a regular basis to assist him or her with a variety of tasks, including dressing, bathing, getting some light exercise, and administering medications. In-home care is always customized to meet the client’s needs, and their loved ones receive important information about how to provide care when the agency’s team is not visiting the home. This can improve the quality of life for the whole family and ease the burden of full-time caregiving.
However, in-home care can sometimes seem expensive, with nearly half of all family caregivers spending more than $5,000 each year for their loved one’s needs. Thankfully, the answer to the question, “Is in-home care tax deductible?” is a resounding “Yes!” Here’s how caregivers can save on costs related to their loved one’s care during tax season this year.
Making a Loved One a Dependent
Caregivers can claim a $500 credit for dependents who do not qualify for the child tax credit, including elderly parents. This deduction is taken from the taxes you owe, rather than from your taxable income.
To qualify, your loved one (who can include people related by blood, marriage, adoption and, in some cases, friends who are unrelated to you) must be a U.S. citizen, national, or resident with a valid identification number. Residents of Mexico or Canada can also qualify as dependents, but you cannot claim credit for other dependents for them. Your loved one’s income also cannot exceed the year’s cutoff amount. In 2018, the cutoff was $4,150. Friends and people unrelated to you can be claimed as dependents if they have lived with you for the entire year.
Also, you must be able to demonstrate that you live with your loved one and pay for more than half of their annual living expenses, including food, clothing, and other necessities. Also, you cannot be a dependent of another taxpayer when filing. A married loved one can only be a dependent if he or she does not file a joint tax return.
Keep detailed records of expenses and timelines, including receipts, calendars, and lists of expenses to help you track allowable deductions. This documentation can also support you if you are audited. Single taxpayers and married taxpayers who do not live with their spouses for the second half of the year but do live with their dependent, and those who do not live with dependent parents, can receive “head of household” status and a higher standard deduction if they claim a loved one’s care as part of their deductions.
Note that two or more people can split their relative’s expenses, but only one can claim the loved one as a dependent. This person must pay at least 10% of support costs. This arrangement, called a multiple support agreement, does not qualify you for “head of household” designation. Adding a dependent can also affect your household health insurance costs if you purchased a policy through the marketplace or if your dependent is eligible for Medicaid. So, review your insurance rules before choosing this method of saving to ensure that it is the most effective option for your household.
Deducting Medical Expenses
Money used to cover a loved one’s non-reimbursed medical expenses can be deducted if the qualifying expenses totals more than 7.5% of your adjusted gross income and your total itemized deductions are more than the standard deduction. IRS Publication 502 contains a full list of qualifying deductions, which include in-home care services, glasses, insulin, and more. Qualifying deductions on services and medical resources unrelated to in-home care should always be taken, as they can help you save more money for care in the coming year.
Flexible Spending and Health Savings Accounts
Flexible spending and health savings accounts, often abbreviated as FSAs and HSAs, respectively, allow you to set aside money before taxes are deducted for various out-of-pocket medical expenses. These can include bills, copays, deductibles, and other treatments that are not covered by insurance. Payments made using an HSA or FSA cannot be deducted as medical expenses on your taxes, but they can help make these expenses more affordable before tax season arrives.
Child Dependent Care Credits
For this deceptively-named credit, a loved one does not have to qualify as a dependent. Instead, they must be physically or mentally unable to take care of themselves and they must have lived with you for more than six months. In addition, this person would have qualified as a dependent if not for their income totaling more than the allowed maximum, filing a married joint tax return, or your own designation as a dependent. You must also pay for child or adult day care or an in-home health worker to assist your loved one while you look for or attend work. If you have a spouse, they must also work, be a student, or be disabled for you to qualify.
Organizing Your Finances
Keeping detailed records of your loved one’s care expenses is essential in securing tax credits. Reaching out for professional support may also be beneficial. Contact Comfort Home Care for more information about tax deductions for in-home care or to schedule a consultation. The care agency can help you understand the latest tax credits and determine which ones apply to your situation. Comfort Home Care can also provide a range of in home care services, allowing your loved one to maintain a high quality of life through customized care plans designed to meet their needs and those of your entire family.