Last updated: January 31, 2019
If you’re trying to figure out how the Tax Cuts and Jobs Act, the sweeping tax reform that took effect in 2018, has changed caregiver and medical deductions for seniors, you’re not alone.
The 2019 tax season brings several changes that affect seniors and family caregivers filing federal returns for tax year 2018, including higher standard deductions, elimination of the personal exemption, modified itemized deduction rules and a new $500 dependent credit that can benefit family caregivers.
The Internal Revenue Service (IRS) estimated in 2018 that the agency would need to create or revise more than 400 taxpayer forms, instructions and publications for the 2019 filing season. Now that tax time is here, family caregivers and seniors have questions about caregiver and long-term care deductions, medical expenses and tax credits.
Here is what you need to know before filing your 2018 federal income taxes.
INCREASED STANDARD DEDUCTION AMOUNTS
Standard deduction amounts roughly doubled for tax year 2018:
- Single or married filing separately — $12,000
- Married filing jointly or qualifying widow(er) — $24,000
- Head of household — $18,000
You can take the standard deduction or itemize on Schedule A, but you can’t choose both. If you don’t itemize deductions and are 65 or older, you may be entitled to a higher standard deduction, ranging from an additional $1,300 to $1,600. See IRS Publication 554 (Standard Deduction Worksheet, page 22) to determine your standard deduction.
CHANGES TO ITEMIZED DEDUCTIONS
- The limit on overall itemized deductions is suspended, so some taxpayers may be able to deduct more total itemized deductions previously off-limits due to income.
- You can no longer deduct more than $10,000 ($5,000 if married filing separately) of state and local taxes, including income (or sales), real estate and personal property taxes.
- Taxpayers whose loans originated on or before December 15, 2017, may deduct mortgage interest up to $1 million in qualifying debt or $500,000 for taxpayers married and filing separately. If the loan originated after that date, you can only deduct interest up to $750,000 or $375,000 for taxpayers married and filing separately
- Home equity loan interest is no longer deductible unless the interest is paid on loan proceeds used to buy, build or substantially improve a main home or second home.
Find more information on itemizing deductions here.
SENIOR AND CAREGIVER CREDITS
For 2018, you can no longer claim a personal exemption deduction for yourself, a spouse or dependents. However, you may be able to save money on taxes if you qualify for a tax credit:
- Child and Dependent Care Credit: You may be able to claim this $500 credit if you pay someone to care for your spouse or another adult dependent.
- Credit for the Elderly or the Disabled: You may qualify for this credit, which varies in amount according to filing status and income, if you were age 65 or older at the end of 2018. For more information, see IRS Publication 554, pages 26-29.
Prior to 2018, if you were able to claim a parent as a dependent because you provided more than half their support, you could claim a $4,050 personal exemption for that person. That’s changed for the 2018 tax year.
“For 2018, that personal exemption went away, but you still could benefit if you can claim a qualifying relative as a dependent,” says Christopher Jenkins, a Certified Public Accountant in Waltham, Massachusetts. For you to claim caregiver and support deductions for qualified expenses for a relative, the person must either live with you as a member of your household all year or be a qualified relative who doesn’t live with you.
Qualified relatives who don’t have to live with you include your:
- Child, stepchild, foster child or a descendant of any of them
- Sibling, including half-siblings
- Parent, grandparent or another direct ancestor
- Niece or nephew
- Aunt or uncle
- Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law
You may be able to claim a deduction for qualified expenses for a qualifying relative who lived with you as a member of your household all year (or died in 2018 while living with you) if you provided more than half of that person’s total support and the person’s gross income for the calendar year wasn’t more than $4,150. You must also meet other IRS eligibility requirements.
For more information on claiming a relative as a dependent, see IRS Publication 554, IRS Publication 501, page 15 and For Caregivers on the IRS website. Use the IRS’s Interactive Tax Assistant to determine who you can claim as a dependent.
EMPLOYMENT TAXES FOR HIRED CAREGIVERS
If you hired a private health aide or caregiver in 2018, you may need to pay state and federal employment taxes if total compensation exceeds $2,100 for a year or $1,000 for a quarter, says Jenkins. If you paid wages to a spouse, sibling or your child, you’re not required to pay employment taxes on those wages.
In addition to employment taxes, you’re also responsible for paying state unemployment taxes and, unless excluded by a mutual written agreement, state and federal withholding taxes, says Jenkins. Generally, if an agency provided the worker, that person isn’t considered your employee for tax purposes. However, it’s important to confirm with the agency that it is responsible for all taxes.
For more information, see IRS Publication 926.
DEDUCTING MEDICAL EXPENSES
Individuals who itemize instead of taking the standard deduction can deduct only the amount of medical and dental expenses you paid for yourself or a qualifying relative that is more than 7.5% of your Adjusted Gross Income (AGI), a threshold reduced from 10% by the Tax Cuts and Jobs Act for the 2018 tax year.
Qualifying medical expenses include:
- Amounts paid for inpatient hospital care
- Medical insurance premiums
- Nursing services. The services need not be performed by a nurse, if the services are of a kind generally performed by a nurse such as giving medication or changing dressings as well as bathing and grooming the patient. Nursing services can be performed in your home or another care facility
- Qualified long-term care services
- Certain amounts of long-term care insurance premiums
- Qualified long-term care services
- Home improvements for medical care purposes
DEDUCTING LONG-TERM CARE MEDICAL EXPENSES
You can include qualified long-term care services in medical expenses if the services were required for a chronically ill person and prescribed by a licensed health-care practitioner. A person is considered chronically ill if he or she is unable to perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing and continence) or requires substantial supervision for health and safety due to cognitive impairment.
If you hire an in-home caregiver, Jenkins recommends getting a letter from your or your loved one’s doctor documenting the need for help. “That letter acts as an anchor for being able to deduct medical expenses,” says Jenkins. “Make sure you also maintain some kind of log if you have a caregiver, showing that they help you with some kind of daily activities.”
For more information on qualified long-term care medical expenses, see IRS Publication 554, page 24.
DEDUCTING LONG-TERM CARE INSURANCE
Individuals who itemize may be able to include qualifying long-term care insurance premiums paid during a taxable year among their other deductible medical expenses. The maximum amount of long-term care insurance premiums you can deduct per person is limited, though it rises each year with inflation:
- Age 40 or under: $420
- Age 41 to 50: $780
- Age 51 to 60: $1,560
- Age 61 to 70: $4,160
- Age 71 or over: $5,200
The ability to claim this deduction depends upon the policy being “tax-qualified,” says Stephen Forman, vice president of Long Term Care Associates, based in Bellevue, Washington. The good news, says Forman, is that nearly all long-term care insurance policies sold today are tax-qualified.
To find out if a policy is qualified, look on the first page of the insurance contract for this statement: “This policy is intended to be a federally tax qualified long-term care insurance contract under Section 7702(B)(b) of the Internal Revenue Code of 1986, as amended.”
Amounts received from long-term care insurance contracts are generally excluded from income, though amounts which exceed your actual expenses are potentially taxable. For more information, see IRS Publication 554, pages 15 and 24.
MULTIPLE SUPPORT AGREEMENT
When two or more people provide more than half of a qualifying relative’s support, only one of those people who individually provides more than 10% of that person’s support can claim the person as a dependent. The others must sign a statement agreeing not to claim the person as a dependent for the tax year. A multiple support declaration must be attached to the return of the person claiming the dependent.
For more information on the multiple support agreement, see IRS Publication 501, page 20.