Caring for an elderly relative can be incredibly rewarding. It may give you a sense of purpose, make a significant impact on their life, and ensure they receive high-quality care. Additionally, you might qualify for several tax benefits. Here are four you should know about:
1. Medical Expenses
If you claim someone as your "medical dependent" and itemize deductions on your tax return, you can include their medical expenses along with your own when calculating your medical deduction. The requirements for a "medical dependent" are easier to meet than for a regular dependent—you generally just need to provide over half of their support, including medical costs.
Keep in mind that medical expenses are only deductible if they exceed 7.5% of your adjusted gross income (AGI).
Qualified long-term care services and eligible long-term care insurance premiums for a chronically ill person also count as deductible medical expenses. There’s a yearly limit on how much of the premiums you can deduct, which varies by age. In 2024, the cap ranges from $470 for someone 40 or younger to $5,880 for someone over 70.
2. Filing Status
If you're unmarried, you might qualify for "head-of-household" status if you're caring for someone. To claim this status:
The person must live in your household,
You must cover more than half of the household costs,
The person must qualify as your "dependent," and
The person must be a relative.
If the person you're caring for is your parent, they don't need to live with you, as long as you provide more than half of their household costs and they qualify as your dependent. Head-of-household status offers a higher standard deduction and lower tax rates compared to filing as single.
To determine if someone is your "dependent," these conditions must be met:
You provide more than 50% of their support,
They either live with you or are related to you,
They don’t have income above an inflation-adjusted exemption amount,
They don’t file a joint return for the year, and
They are a U.S. citizen or resident of the U.S., Canada, or Mexico.
Note that dependency exemptions are suspended from 2018 through 2025, but the dependency tests still apply to determine eligibility for certain tax benefits, like head-of-household status.
3. Dependent Care Credit:
If the person you're caring for qualifies as your dependent, lives with you, and is unable to care for themselves due to physical or mental limitations, you might be eligible for the dependent care credit. This credit can help cover the costs of their care, allowing you and your spouse to work.
4. Nonchild Dependent Credit:
From 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) introduced a $500 federal income tax credit for dependents who don't qualify for the Child Tax Credit. If your parent qualifies as your dependent, you may be eligible for this $500 credit. However, your parent must meet the gross income test to be considered your dependent, and you must pay more than half of their support.
The credit starts to phase out if your adjusted gross income (AGI) exceeds $200,000 ($400,000 for married couples filing jointly). For every $1,000 your AGI exceeds the threshold, the credit is reduced by $50.
If you're caring for an elderly relative, be sure to inform us at tax time. We can discuss the tax implications of financially supporting and caring for them.