Tax Breaks for Caregivers

Mother and daughter — (Image credit: Getty Images/iStockphoto)

If you provide more than 50% of the relative’s support and she has a gross income (not counting tax-free Social Security benefits) of less than $4,000 in 2015, you can claim her as a dependent on your tax return. Your relative does not have to live with you to qualify.

The exemption will knock $4,000 off your taxable income (restrictions apply if your income exceeds $258,250, or $309,900 for married couples filing jointly). You can include medical expenses paid for a dependent (or someone who would qualify if not for the income test) when determining if you can write off medical expenses on your return. You can deduct such expenses to the extent they exceed 10% of your adjusted gross income (7.5% if you or your spouse is 65 or older). Allowable expenses include the cost of nursing care at your home or a care facility and of modifications to your home, such as installing grab bars and handrails, to the extent the cost exceeds any added value to your home. For the list of all eligible expenses, see IRS Publication 502, at www.irs.gov.

If you pay someone to care for your relative while you work or look for work, you may be able to claim the child and dependent care credit on your federal tax return. The credit can knock $600 to $1,050 off your tax bill for the year. Home care qualifies for both the medical expense deduction and the dependent care credit, but you can’t apply the same expenses to both; it’s usually best to count them first toward the dependent care credit.

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If you have flexible benefit plans at work that allow you to use pretax income to cover medical or dependent care costs, you can tap those accounts for reimbursement for qualified expenses paid for a dependent parent or other eligible person. You’ll generally get a bigger break by using the flexible spending account rather than the dependent care credit (see “Ask Kim,” at kiplinger.com/links/dependentcare).

Hiring someone to provide care in your home or the care recipient’s home could trigger requirements that you pay Social Security, Medicare and unemployment taxes for the employee. This requirement generally does not apply if the paid caregiver is a family member or an employee of an agency.

The late Jane Bennett Clark, who passed away in March 2017, covered all facets of retirement and wrote a bimonthly column that took a fresh, sometimes provocative look at ways to approach life after a career. She also oversaw the annual Kiplinger rankings for best values in public and private colleges and universities and spearheaded the annual "Best Cities" feature. Clark graduated from Northwestern University.