7 Tax Deductions for Caregiver Expenses

Taking care of a sick or elderly loved one is not easy, and for many, the daily costs incurred due to ongoing medical expenses can start to take a toll. This is why tax deductions for caregivers are offered by the IRS. These tax laws can offer Americans some much-needed financial relief, during an already difficult stage of life.

Key Takeaways

• The IRS offers caregiver tax credit options to individuals caring for family members and even close friends in some cases.
• Child tax credits and dependent credits can be applied if eligible children live in your home, and you pay more than half of their living expenses throughout the year.
• A dependent is defined as a person aged 17 or younger, a student under 24 years old, or an adult who is “permanently and totally disabled.”
• According to IRS tax rules, a head of household is an unmarried person who is financially responsible for maintaining a home with children or other dependents (providing at least 50% of their financial support).
• You may be able to claim tax credits and deductions if you need to hire help within your home to care for dependents or provide them with medical assistance.
• If you spend more than 7.5% of your adjusted gross income on qualified medical expenses, you can claim the excess on an itemized tax form 1040.
• Flexible spending accounts (FSA) and health savings accounts (HSA) are tax-free banking solutions devised to provide individuals with tax-free savings that can be used to deduct medical expenses.
• Accounting software can help keep deductions, bills, and receipts organized, making tax time easier.

Table of Contents

• 7 Tax Deductions for Caregivers
• Caregiver Tax Deduction Rules and Regulations
• How Can You Claim Caregiver Expenses?
• FreshBooks Eases Tax Preparation
• Frequently Asked Questions

7 Tax Deductions for Caregivers

The following are 7 of the main tax-deductible caregiver expenses allowed by the IRS. These tax breaks are offered to relieve some of the stress that can come with being a primary caregiver for a person with high levels of need.

1. Child Tax Credit

If you have any qualifying children who lived in your home for at least half of the year, are your dependents, and are under the age of 17 by the end of the year, you are eligible to receive the child tax credit.

This means you can take up to $2000 per child off of your taxes owed. Up to $1500 of this amount may be refundable.

2. Dependent Tax Credit

A dependent is any person who relies on you for financial support, including children and other relatives. You can claim these dependents on your taxes to receive a tax break, as long as they qualify as such.

Dependents must be under the age of 17, a student under the age of 24, or an adult who is “permanently and totally disabled,” or who meets the qualifying relative test provided by the IRS. They must live with you for more than 6 months during the tax year and you must provide more than 50% of their financial support.

3. Child and Dependent Care Credit

Many parents, foster parents, and other caregivers with dependent children or adults living with them need to work outside of the home and hire outside help.

This credit may be able to refund some of the money you have spent on care for your disabled or dependent loved one, saving you hundreds or thousands on your year-end tax bill. The dependent care tax credit is subject to income and dollar limitations.

4. Medical Expense Deduction

This is a common caregiver tax deduction, as out-of-pocket medical expenses add up for things like hearing aids, prescription medications, dental expenses, or travel to medical appointments.

If you spend over 7.5% of your adjusted gross income on medical expenses, you can itemize your taxes and claim the excess as a tax credit.

5. Flexible Spending Accounts

A Flexible Spending Account (FSA) is an arrangement made by an employer. You put some of your earned money into a special FSA account, which is not taxed at the end of the year.

You can then use the money to pay for medical expenses like insurance copayments or deductibles, prescription medications, and medical devices, tax-free.

6. Health Savings Accounts

A health savings account (HSA) is a type of personal savings account used to set aside money for medical expenses like copayments, insurance deductibles, and some other health-related expenses. You can withdraw this money tax-free, as long as you use it for specific, qualified medical costs. This will save you on your out-of-pocket health care costs throughout the year.

7. Head-Of-Household

A legal head-of-household is an unmarried or single individual who provides over half of the cost of running and maintaining a household. This person can receive a tax deduction for helping a family member with a disability, as can those who have children who live with them for more than 6 months during the year.
Knowing what you can and cannot use as tax breaks can be difficult, but tax preparation doesn’t need to be stressful. Using FreshBooks tax accounting software can help you keep track of your expenses and receipts, making tax time much easier.

Caregiver Tax Deduction Rules and Regulations

As a head of household, to qualify for any family caregiver tax deductions or tax credits, you must be the person who pays over half of the dependent care expenses or assisted living costs.

Dependents have to be a qualifying child or qualifying relative, they must be an American citizen or a national resident, and they cannot be your spouse. They also cannot file a joint return with their spouse.

How Can I Claim Caregiver Expenses?

If you are paying to have a caregiver in your home to take care of an elderly or disabled family member, or to watch your children while you are working, you may be able to claim credits and tax deductions for caregivers (such as dependent care credit). To do so:

• Ensure your family member legally qualifies as a dependent
• Itemize your taxes for the tax year instead of taking the standard deduction
• List caregiving costs and medical expenses, with receipts and bills to back up claims (this will protect you in case of an audit, and make it more likely you will be issued the maximum tax benefits)
• Tax credits reduce your tax due, whereas tax deductions reduce your taxable income
• You may want to consult with a tax professional

FreshBooks Eases Tax Preparation

FreshBooks is a cloud-based accounting software that helps people like you stay on top of tax prep, including tracking and categorizing expenses and organizing receipts, to take the stress out of doing your taxes, and to help ensure you can maximize your deductions.

Whether you are a small business owner or a primary caregiver in the home, FreshBooks is designed to make life easier for you. Try FreshBooks for free to see how you can benefit from this easy-to-use software solution.
Explore more about the types of tax deductions that may be available to you this tax year in our article on Small Business Tax Deductions.

FAQs About Tax Deduction for Caregivers

Learn more about tax breaks for caregivers, and how you can use tax deductions for caregiver expenses to save on your upcoming tax bills, by reading the answers to the following frequently asked questions below.

What is the 5000 caregiver tax credit?

There is a proposal that has been reintroduced to Congress, but has not yet been enacted. If enacted, then under the Personal Income Tax Law (PITL), the maximum amount of dependent care credits a caregiver would be able to claim is $5000, regardless of the type of tax return filed. Any excess credit and unreimbursed medical expenses would then be carried over into the next three tax years.

Can you deduct expenses for caring for an elderly parent?

Yes, there are several costs you can deduct when you are the person taking care of your elderly parent if you itemize your taxes. There are deductions that can be claimed for expenses you paid out of pocket, like medical or dental expenses. Tax credits are available for dependent care costs. FreshBooks can help you keep track of your receipts and expenses throughout the year, making tax time easier.

Can I claim my wife as a caregiver?

No, a taxpayer’s spouse cannot be their dependent. Instead, they file a joint return (married filing jointly).

Is dementia care tax deductible?

Yes, if you have been paying for a memory care facility and other expenses related to long-term dementia care and personal care that helps with the activities of daily life, you can use tax deductions to help offset some of these expenses.

The person must be chronically ill, require supervision, and have a specialized senior care program in coordination with a physician to qualify.

Can you claim your mother as a dependent if she lives with you?

Yes, your mother doesn’t even have to live with you for at least half the year to be considered a dependent—she can live in another house, a senior living home, or a nursing facility. If you are paying over half of your mother’s household expenses, then she can qualify as a dependent.

Can a caregiver deduct mileage?

Yes, like taxes for a small business, caregivers can deduct mileage, but only for the costs incurred within the scope of the job itself. You cannot deduct the cost of commuting from your home to the workplace, for example, but if you were taking the dependent person out to medical appointments, those miles could be deducted.

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