Tax Breaks For Aging Parent Caregivers

[ photo by Mikhail Nilov ]

Caregiving for aging parents can be costly.

Providing care to our loved ones can certainly be a blessing, but it can also be a time-consuming, costly process, as well. The hours spent providing care to a loved one are usually unpaid. For many, it is not just unpaid time, but also time lost on the ability to earn money from missing out on paid hours at work or even missing out on promotions.

In addition to unpaid time, the majority of caregivers spend some percentage of their personal income on providing care to the loved one. I do not write this as a discouragement but rather to bring this to light. Unfortunately, this blog post will not show you how to be paid for your time, but it will hopefully bring to light tax breaks that many caregivers might not be taking advantage of. 

(Related blog posts: Caring For Dementia Caregivers, Care Of Elderly Parents At Home)

How much does caregiving cost?

In 2016, the AARP did a 5-year study to determine out-of-pocket expenses as a result of caregiving. Seventy-eight percent of caregivers reported spending some portion of their personal finances on caregiving, spending $7,242 on average. It was also noted that Generation X is spending the most, averaging $8,502.

The money spent is on a wide array of things, from helping with medical expenses, home modifications, to durable medical equipment. The costs increase significantly for those providing care to loved ones with dementia. I found this study to be pretty eye-opening but, quite frankly, not very surprising. I could go on with the facts and numbers from the study, but that is not really the purpose of this post. I did include the link to this study at the bottom of this post, so feel free to read it in its entirety. 

(Related blog posts: Elderly Home Modifications, Home Medical Equipment, Mobility Assistive Equipment)

Tax breaks for caregivers can reduce costs.

The financial costs can at least be reduced somewhat through available tax breaks. I think this is a timely blog as many of us work to gather all of our financial information for the past year in order to file our taxes.

So let’s first think about the tax write-off. In order to be able to write off the particular expenses of a loved one to whom we are providing care, that loved one will likely need to be claimed as a dependent on your tax return. In order for this to occur, the claimed dependent must earn less than $4,300 for the year. You, the caregiver, must also provide more than half of the support to the loved one (rent, food, transportation, etc). I will be honest here in saying that I had never thought of the possibility of claiming anyone other than my children on my tax return prior to learning about this. 

Many caretakers forget to write-off what they have spent on their loved one’s medical expenses. Any medical expenses that exceed 7.5% of adjusted gross income can be written off.

Another write-off to consider is the child and dependent care tax credit. This tax credit is often used by families paying for childcare. It can also be used for those paying out-of-pocket services, such as adult daycare, spent on their loved ones. Just this past year, the credit was increased to up to $8,000 per dependent. 

Don’t forget to look for state specific breaks too.

The two tax credits I mentioned are federal credits. There are state-specific tax credits that are worth looking into as well. If you ask me, taxes are complicated. Many people prefer to do their taxes on their own. If you are in that group, don’t hesitate to do your research to learn of all the possible tax breaks you might be able to receive to recoup some of the money you might be spending on the care of your loved ones. For many of you, claiming an aging loved one as a dependent on your taxes might be your cue to get some assistance from a CPA if you have not done so already.

I know the majority of you taking time to read my blog provide care to your loved one without the expectation of being compensated. There is nothing wrong with being reimbursed in some form for the financial burden you are undoubtedly taking on to provide that care.

Caregiving Out-of-Pocket Costs Study 2021 (aarp.org)

Feeling overwhelmed with the process?

Afraid you may not make the right decision at the right time? This stage of life for you and your aging parent often brings more questions than answers. Reading information from a trusted source like me can help guide you in the process. However, if you still feel overwhelmed, don’t hesitate to reach out to me. I am happy to help with a personalized plan for your unique situation.

© 2022 Jessica Kluetz, DO