Tax time: Filing tips for family caregivers

Family caregivers often put a lot of time, energy and money into tending to a relative’s needs, spending nearly $7,000 per year, on average, or 20 percent of their income on medical and caregiving expenses, according to a 2016 study from AARP.

While the effort is often an unpaid labor of love, in some cases, caregivers are able to receive tax benefits for fulfilling this family duty.

David Woods is a tax preparer and owner of Woods Financial Services in Pacific Beach, as well as an enrolled agent who can represent taxpayers before the Internal Revenue Service. He advises caregivers to bring as much information as they can to their tax preparers to ensure ideal outcomes.

“More is better than less, if only because if it’s a situation that the preparer hasn’t encountered before, or if it’s just something new to that particular taxpayer,” Woods said.

Woods shared advice with The San Diego Union-Tribune for family caregivers ahead of this year’s May 17 filing deadline.

Does my care recipient qualify as a dependent?

In some cases, someone 17 or older may qualify as the dependent of a family caregiver, for whom they can claim up to $500 as a “Credit for Other Dependents” to reduce their tax bill, according to the IRS.

The care recipient must be a U.S. citizen, U.S. national or legal resident of the United States whose gross income was less than $4,300 in 2020, according to the IRS 2020 Tax Guide. The caregiver must also pay for more than half of their dependent’s living expenses (including medical and dental care).

Although a parent, partner or other blood relative can qualify as a dependent in 2020 if they lived in a nursing home, assisted living facility or independently, a nonrelated friend or loved one must have lived with the caregiver for all of 2020 to qualify for the credit.

The care recipient also must not be filing taxes on their own or with a spouse, and neither the recipient nor the caregiver can be claimed as a dependent by anyone else.

Can I deduct a dependent’s medical expenses?

Yes, a caregiver can deduct a loved one’s medical expenses if the qualified medical expenses of everyone on the filer’s tax return is equal to or more than 7.5 percent of their adjusted gross income for 2020, and if the total itemized deductions are more than the standard deduction.

While the price of medical care at a long-term care facility is tax-deductible, the cost of living expenses at a facility does not qualify as a medical expense. Woods said that, typically, a nursing home will provide information on the percentage of long-term care costs that are specifically related to medical services.

Similar to nursing home deductions, a caregiver can also include the cost of in-home nursing services in their deductions, but it only covers medical-related care. If a professional, in-home care provider also does house cleaning for 30 percent of their work hours, as an example, then this percentage of the cost should not be included in the medical deduction.

Some other examples of medical deductions that caregivers may qualify for include the following, according to IRS Publication 502:

• Ambulance
• Artificial limbs or teeth
• Bandages
• Home and vehicle modifications related to medical care or a disability, including adding wheelchair ramps, installing railings or support bars in bathrooms, and widening doorways
• Hospital services, including meals and lodging if the person is there to receive medical care
• Prescribed medications
• Psychologist
• Wheelchairs, walkers, canes and other prescribed equipment

Are there any special forms I need to fill out?

No, you just need to have their full name, Social Security number, date of birth and relationship to you to include in your filings. It is also best to keep documentation on file to support medical claims.

Do I include caregiving stipends in my income?

Government stipends paid to family caregivers for tending to their loved one’s needs at home are exempt from being taxed, Woods said, but they can be used to claim an earned income credit.

Through the Medicaid Home and Community-Based Services waiver program, people who would require care in a medical facility, like a hospital or nursing home, can receive care at home from a caregiver like a relative, according to the IRS. As long as the care recipient lives in the same home as the caregiver, the care provider can receive Medicaid waiver payments to cover the time spent caring for someone, which is excludable from their gross income.

“There is a certain type of government payment that goes to in-home care providers if you’re taking care of a loved one at home — you’re the primary care provider, but you’re not a professional,” Woods said. “The income that the government pays you is exempt from tax, but it gets included in the calculation for the earned income credit.”