After her father passed away, Sheila took it upon herself to care for her mother as best she could. Her mother, now 85, was still living independently, and Sheila had been paying most of the costs associated with her mother’s household. Sheila worked two jobs and rented out her basement just so that her mother could live comfortably in the home she’d been in for more than 30 years.
Needless to say, Sheila needed a break. But when tax time rolled around, she found out she was in for a different kind of break than she thought—a tax break. After describing her situation to her accountant and showing her all of her paperwork, Sheila learned that she could claim her mother as a dependent, name herself head of her mother’s household, and benefit from tax deductions.
If you are a live-in caregiver for a family member or are financially responsible for an aging relative, you may be able to claim some tax deductions on your next return. Let’s look at some of the IRS’ laws for dependency tax deductions to determine whether or not you are eligible for any deductions.
Filing Exemptions for a Dependent as a Live-In Caregiver
If you look after your aging parent or relative, you may be able to claim them as a dependent on your taxes, meaning that you are able to receive a tax exemption for them. If they qualify, this reduces your taxable income by $4,050 (as of 2016) per dependent.
There are, however, some criteria your aging loved one must meet to be considered a dependent. According to the IRS your relative must:
- Live with you (or be a type of relative that does not need to live with you to qualify, such as a parent, sibling, or grandparent).
- Have an annual income less than $4,050 (per 2016).
- Provide proof that you paid more than half of their total support costs (such as food, clothing, and lodging).
Furthermore, your loved one must be one of the following to be considered a dependent:
- A U.S. citizen
- A U.S. resident alien
- A U.S. national
- A resident of Canada
- A resident of Mexico
Also keep in mind that if you do claim your aging loved one as a dependent, they can’t claim any tax deductions. If you are unsure as to whether or not your loved one qualifies as a dependent, check with an accountant or tax professional. If your loved one doesn’t qualify, there are still important tax tips for seniors that they should be aware of when filing.
Qualifying as Head of the Household
Once you’ve established that your aging loved one is indeed a dependent, you’ll need to check if you qualify as head of household. Filing your taxes as head of household can give you some great benefits. For example, you can receive a much better tax rate than you would if you filed as a single, and you can claim a higher standard deduction. In fact, the IRS just announced that for the 2017 tax year, the standard deduction for a head of household will be $9,350, a significant amount more than the standard deduction of a single taxpayer ($6,350).
Generally, there are three criteria you must meet to qualify as head of household. These criteria require that:
- You are unmarried (as of the last day of the year).
- You paid more than 50% of the household costs for the year.
- The dependent you claim must have resided with you for at least half of the year unless that person is your parent or is considered by the IRS to be a relative who doesn’t need to live with you.
If the dependent is your parent or a relative who doesn’t need to live with you, such as a sibling or grandparent, you may be able to claim head of their household even if they don’t live with you as long as you can also claim a tax exemption for them and prove that you were financially responsible for more than half of the cost of their household for the year. This applies whether your parent is living in their own home or a care home. Also, keep in mind that if your parent passed in the last year, you are still able to qualify as head of their household.
Tax Deduction Benefits
Luckily, it is possible to receive tax deductions as a live-in or live-away caregiver for your aging loved one. To ensure you are making the most of your tax deductions and doing them in accordance with the IRS’ laws, be sure to work closely with a tax professional.
While it’s difficult to put a dollar value on the care you provide for your aging loved one, tax deductions can indeed lessen the burden financially. In fact, the money that Sheila received on her return made a significant financial difference for her—just as it can for you.
At Institute on Aging, we provide resources and services, including financial services, to aging adults. To learn more about our diverse offerings, contact us today.