Over 17 million people in the United States are actively taking care of their elderly parents, according to the Bureau of Labor Statistics. Providing that care can be vital, and it also can be expensive: A study by the Urban Institute found that out-of-pocket expenses can run $140,000 on average in families in which an elderly person has long-term care needs.
However, a few tax breaks might help. These aren’t the only ones that might be available to you, so consult with a qualified certified public accountant or financial planner for other options.
1. The dependent exemption
What it is: You might be able to claim all or part of an exemption of up to $4,050 if your adjusted gross income was less than $436,300 (for joint filers) or $384,000 (for single filers) in the 2017 tax year.
How it works: Mom or Dad has to be your dependent for tax purposes. That might be the case if you provide more than half of their financial support during the year, even if they don’t live with you. (There are many rules about who can be a dependent, so be sure to talk with a qualified tax pro if you think this might be for you.) “Support” can include expenses such as food, utilities, health care, repairs, clothing and travel.
Enjoy this exemption while it lasts, warns Lindsey Nolan, a CPA at Ketel Thorstenson in South Dakota — it’s gone for the 2018 tax year, though there will be a $500 tax credit for nonchild dependents.
2. The Child and Dependent Care Credit
What it is: If you paid for someone to take care of your parent so you could work or actively look for work, you might qualify for a credit that generally runs 20% to 35% of up to $3,000 of adult day care and similar costs. Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your tax bill by $1,000.
How it works: IRS rules say Mom or Dad must have been physically or mentally incapable of self-care and must have lived with you for more than half the year, Nolan notes. You’ll need to have earned income to take this credit, and you’ll need to provide detailed information about the care provider.
3. Your employer’s dependent care benefits
What it is: People often think dependent care flexible spending accounts, if your employer offers them, are just for child care. But elder care may be included too, Nolan says.
How it works: The IRS will exclude up to $5,000 of your pay that you have your employer divert to a dependent care FSA account, which means you avoid paying taxes on that money. That can be a huge win, but again, Mom or Dad usually needs to be your dependent. What’s covered can vary among employers, so check out your plan’s documents.
4. The medical expenses deduction
What it is: If you paid for Mom’s hospital stay or footed the bill for expensive medical or dental care and weren’t reimbursed by insurance or other programs, you might be able to deduct the cost.
How it works: In general, you can deduct qualified medical expenses that are more than 7.5% of your adjusted gross income. So, for example, if your adjusted gross income is $40,000, anything beyond the first $3,000 of Mom’s medical bills — or 7.5% of your AGI — could be deductible on your return. If you paid $10,000 in medical bills for her, $7,000 of it could be deductible. Mom needs to be your dependent in this case, too. Your state might have a lower AGI threshold, which means you might get a break on your state income taxes even if you can’t get one on your federal income taxes.