Last updated: March 26, 2018
By nature, tax rules are complex. It’s important to consult a tax attorney or accountant versed in eldercare tax issues about your specific situation before finalizing your taxes. The AARP also offers free assistance and tax tips for seniors through its Tax-Aide Program. The following tax information has been reviewed and is accurate for the 2017 tax year in the United States.
Whether you are a senior citizen or a caregiver for one, tax season means accounting for the past year’s medical expenses. The Internal Revenue Service (IRS) states, “medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of diseases, and the costs for treatments affecting any part or function of the body.” Both individuals and people who care for qualifying relatives can claim deductions and credits for a range of out-of-pocket expenditures such as:
For a full list of allowable medical expenses, see IRS Publication 502 at www.irs.gov. Read on about the rules that govern deductions and for more tax tips for seniors and their caregivers.
To qualify for caregiver tax deductions and credits the person you are caring for must be a spouse, dependent, or qualifying relative, as well as a United States citizen or resident of the U.S., Canada, or Mexico. A qualifying relative includes a parent, stepparent, father-in-law or mother-in-law, or any other person who lived with you all year as a member of your household. The caregiver and medical expense tax rules have several important qualifications:
To qualify for a dependency deduction, you must pay for more than 50% of your qualifying relative’s support costs. The relative only qualifies as a dependent if he or she meets the gross income and the joint-return test: s/he must not have a gross income in excess of $4,050 and cannot file a joint tax return. If your relative doesn’t qualify as a dependent because of these tests, you cannot claim a dependency deduction, but you can still claim his or her medical expenses.
For more information, read page 11-23 of the IRS Publication 501 on tax exemptions.
If a group of people are sharing costs for a qualifying relative, a multiple support declaration (IRS Form 2120) can be filed to grant one family member the exemption. “This is subject to certain conditions,” says Ron Nagle, CPA, senior tax manager of Clothier & Head in Seattle. “Anyone who is paying medical and support costs with another person should consult a professional tax advisor.”
Long-term care medical expenses (including but not limited to diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative, as well as maintenance and personal care services) are deductible if the services are required by a chronically-ill individual and a licensed healthcare practitioner prescribes the care. An individual is chronically ill if unable to perform at least two of six activities of daily living (eating, toileting, transferring, bathing, dressing, and continence). An individual who is cognitively impaired and requires substantial supervision is also considered chronically ill.
Nursing services performed in a nursing home, an assisted living facility, or similar care facility are also deductible expenses if the person is receiving care principally for medical reasons. However, if a person is staying at a nursing home, an assisted-living facility, or similar care facility only for custodial reasons, only medical expenses are deductible (i.e. in this instance, meals and lodging are not deductible). If the stay is only for custodial care, a staff member should be able to state what percentage of received care qualifies as medical care, says Nagle. Similarly, nursing services performed at home may qualify as deductible expenses.
Senior citizens and caregivers should be aware that premiums paid for qualified long-term care insurance contracts may qualify as deductible medical expenses if they meet the Adjusted Gross Income (AGI) threshold. The Tax Reform Act of 2017 changed the AGI threshold for medical expenses from 10% to 7.5% for 2017.
According to the IRS, the contract must:
The amount of long-term care premiums you can include is limited and the amount you can expense as medical expenses varies by age. See IRS Publication 502 for more information.
Many state governments also offer tax credits and deductions for caregivers on state income tax forms, so it pays to know your individual state’s rules.