IRS Rules for Caregivers
Most of us at one time or another will be taking care of a relative, either a dependent adult (such as parents, aunts or uncles) or a child. Along with the additional responsibilities comes a change in your tax scenario. Here is a brief look at caregiving-related tax deductions.
Income
As with many tax deductions, people who want to claim a loved one as a dependent must first the IRS income guidelines. The person whom they will be caring for must earn less than $3900 a year. This income figure doesn’t include any additional income from Social Security or Social Security Disability.
Eligible income includes interest from bank accounts, pension payments, and investment dividends. Before claiming the individual on your taxes, should make sure that this individual’s income falls within IRS guidelines.
Provider Cost Requirements
In order to claim a loved one as a dependent, you must provide at least 50 percent of that person’s support and use at least 10 percent of their adjusted gross income to cover their individual’s medical expenses.
You will need to meet both the income requirements and the provider cost requirements in order to claim the dependent care deduction
Restrictions/Limitations
Keep in mind that even thought you may divide financial and practical caregiving among siblings or other relatives, only one of you can claim your loved one as a dependent.
One possible solution is to have the sibling or relative who is providing the majority of support claim the deduction. Other families elect to take turns each year claiming their loved one as a dependent.
Non-Relative Household and Residency Requirements
You do not have to be related to the person for whom you are providing care. However, you do have to meet certain household and residency requirements before claiming this person as a dependent on your taxes.
By law, you must either live with the person your caring for, or they must live with you for at least an entire tax year. You won’t be able to claim the caregiving deduction if your caregiving arrangement doesn’t meet one of the above guidelines.
Deduction Limitations
Here are some of the expenses you can claim as part of the caregiving deduction
- Medical bills
- Long-term care costs
- Taxes on inherited IRAs
- Prescriptions
- Mileage related to medical/dental care for your dependent
- Dental bills
- Interest on their mortgage if they make the payment each month
- Home remodeling expenses related to modifications for increased safety and/or accessibility
As our population ages, more and more individuals are electing to take care of their loved ones. If you are caring for an aged or disabled loved one, keep in mind that certain expenses are tax-deductible if you meet the income and residency requirements above. If this is your first tax year as a caregiver, be sure to check with a licensed tax pro regarding deductions.
Each person’s tax scenario is unique, and consulting with a tax pro will enable you to claim the deductions that you are entitled to each year.