As an elder adult or caregiver for someone elderly, when it comes to taxes it is important to account for one’s medical expenses incurred in that year. According to the IRS medical expenses are “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body”. This means individuals can claim deductions for certain out-of-pocket medical expenses, often including payments for medical services rendered by physicians, surgeons, and dentists, and the costs of equipment, supplies, and diagnostic devices needed to care for or treat the individual. It can also include health and medical insurance premiums. (For a full list of allowable medical expenses, see IRS Publication 502 at www.irs.gov).
As a caregiver to a qualifying relative such as a spouse, parent, or other relative/dependent who lived with you all year as a member of your household, you must have pay for more than 50% of your qualifying relative’s medical costs, and the relative must meet the gross income and the joint-return test requirements. If your relative doesn’t qualify as a dependent because of these tests, you cannot claim a dependency deduction, but you may still be able to claim the incurred medical expenses as deductions. (For more information, refer to pages 11-23 of the IRS Publication 501 at www.irs.gov). If multiple family members are sharing in the medical costs for an aging relative, only one family member can claim the exemption, and a multiple support declaration (IRS Form 2120) must be filed.
LONG-TERM CARE EXPENSES
Long-term care expenses can be deductible if a licensed healthcare practitioner prescribes the care to an individual who is chronically ill and struggles to perform activities of daily living on their own. Activities of daily living include things like ambulating, eating, bathing, dressing and continence care.
A consumer of in home senior care services may be wondering where they should draw money from to pay for long term care services. If the services are going to be considered “medical expenses” for income tax purposes, it sometimes makes sense to draw more from retirement accounts even if that withdrawal will be treated as taxable income (the income tax consequences of withdrawing the funds can be balanced with the medical expense deduction). An individual can deduct medical expenses once they exceed 7.5% of adjusted gross income. One can frequently meet that threshold if the in home care services they are receiving are considered “medical expenses” (as referenced above and further clarified in IRS Pub 502). For those who do meet the AGI income threshold, premiums paid for long-term care insurance policies may also qualify as deductible medical expenses, however the amount of premium payments you can include is limited and the amount you can expense as medical expenses varies by age. According to the IRS, the long term care policy is qualified if it:
- Is garunteed renewable
- Does not provide a surrender able cash value
- Does not pay costs that are covered by Medicare
- Provides that refunds, other than refunds upon death, surrender, or cancellation of the contract, and dividends are used only to reduce future premiums or increase medical benefits
As a senior with medical expenses, or as a caregiver for one, you want to explore both federal and state tax credits and deductions may apply to your individual situation; as it could save you hundreds or even thousands!
(See IRS Publication 502 for more information.)
Allegiance Aging Care Services and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
About the Author: Pam Reynolds, CMC is the President and co-owner of Allegiance Aging Care Services. Pam has spent almost fifteen years working in senior care including long term care facilities and home health care. Her higher education is in Social Work, and she has been credentialed as both a certified Geriatric Care Manager and Licensed Assisted Living Administrator. Read more about Pam and her team of Aging Care Professionals here.