Many people who act as caregivers for their elderly relatives or another person who qualifies as a dependent will end up expending significant funds to do so.
While some assistance can be sourced from government and employer programs, many of these expenses must be paid for out of pocket. This is especially true if you are providing in-home care services including being a home caregiver.
There are a variety of federal and state tax breaks for family caregivers, and the state agency responsible for elder care in your state may also provide access to certain resources.
For those who spend a certain amount of money on such care, whether home health care or services outside of the home such as adult day care, the tax code allows them to claim tax deductions for certain expenses if the person they are caring for qualifies as a dependent.
When you are not the sole source of personal care and financial support, and multiple family caregivers are caring for a single person, the situation is more complicated, and a Multiple Support Declaration may be required to claim the tax break.
This article will explain when and how such a declaration can be used. First, let’s take a look at how a person you are providing caregiving services for can qualify as your dependent for federal income tax purposes, reducing your tax obligations.
For the person you’re caring for to quality as a dependent on your tax returns, the following must apply:
It is possible to claim some relatives as dependents, even if they don’t live with you.
Such relatives include parents, stepparents, parents-in-law, grandparents, great-grandparents, aunts, and uncles. In order to claim anyone else as a dependent, they must be a full-time member of the same household for the year, whether or not you act as a home caregiver for them.
What happens when family caregivers split caregiving duties so that no single person qualifies for the write-off by meeting the 50% support threshold?
In such a case, one of the siblings can still retain eligibility to claim the deduction. To do that, each of the siblings would have to sign IRS Form 2120, a Multiple Support Declaration.
This form specifies the family member who can claim the person being cared for as a dependent.
Every one of the caregivers who sign the form must have contributed at least 10% of the money spent caring for the person, and no single one of the caregivers can have paid more than 50% of the cost of support. The names of all of the caregivers must be listed on the form, along with their addresses and social security number.
The family member who will claim the deduction files Forms 2120 along with their own income tax return. This applies to earned income that is subject to self-employment tax reported by 1099-misc or is reflected on form w-2.
If you are filing Form 2120, do not send the signed statements with your taxes, instead keep them yourself so that you have them ready to present if required. There are no gross income limits on taking the deduction.
If so desired, the deduction can be rotated from one year to the next among the siblings involved.
The taxpayer who is able to claim a relative as a dependent can also deduct for income tax purposes medical expenses they pay on behalf of that person.
To ensure that you are able to successfully claim the deduction, it’s important to directly pay health care providers for their services instead of reimbursing the person you are caring for.
When it comes time to do taxes, add those medical expenses to the total medical costs incurred by your family.
If you itemize, and your total medical expenses are more than 7.5% of adjusted growth income (AGI) for the year, the amount in excess of the 7.5% cut-off can be deducted. If a multiple support agreement is in effect, the taxpayer who is claiming the relative as a dependent is the only one who can claim the medical expenses.
Joshua Iversen is a Registered Investment Advisor Representative and Senior Planning Specialist with 30+ years of experience. As President and Chief Investment Officer of Santa Ana-based Syzygy Financial LLC, he helps seniors deal with all financial and healthcare aspects of the senior experience, including Social Security claiming strategies, Medicare, Medigap, long-term care, and overall financial planning strategy.
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