Medical care expense deduction for long-term senior care services
How families can utilize this tax break to save money on in-home senior care costs
According to the 2019 Care.com Cost of Senior Care survey, the average cost to hire an in-home senior caregiver is $17.32 per hour nationwide. Over the course of the year, this adds up, but many families can offset a portion of this expense by taking the Medical Care Expense Deduction when they file their tax return. In this article, we’ll go through:
Many people don’t think of in-home senior care as a medical expense because the perception is only hospitals and doctors’ offices handle medical needs. After all, the caregiver or companion being hired may not be administering medical treatment. As a result, families may not think to look for tax breaks on this expense or tell their accountant about it. However, the Medical Care Expense Deduction is the most common tax break available families with senior care needs can qualify for and it should be taken into account for budgeting purposes.
The Medical Care Expense Deduction is an itemized deduction you can take on your personal income tax return. It covers a wide range of expenses, but for the sake of this article, we’re only going to focus on what you can deduct if you have long-term senior care needs. The full list of expenses are covered in IRS Publication 502 if you’re interested in doing a deeper dive on the topic.
The IRS says diagnostic, preventative, therapeutic, rehabilitative and personal care services can qualify. The person receiving care just has to have a licensed healthcare practitioner certify that they either need substantial supervision for their own safety or require help with at least two activities of daily living, such as eating, toileting, transferring, bathing and dressing. These requirements fit most in-home senior care scenarios because the person being hired to provide care will have to perform many of these duties.
Expenses can only be applied if they fit the qualifications just mentioned. For many families with in-home senior care needs, they’ll include:
The wages paid to the caregiver any time they’re supervising the senior or helping them with activities of daily living.
The Social Security, Medicare, unemployment insurance and other employment taxes owed on those wages.
This is important to keep in mind because if the caregiver is only spending 80% of their time supervising the senior and helping them with activities of daily living, only 80% of what you pay them can be applied to the Medical Care Expense Deduction. The remaining 20% of their time spent doing other household chores like laundry and dishes cannot be applied.
This is dependent on what your Adjusted Gross Income (AGI) is and how much you’ll pay your caregiver. You can’t begin itemizing your in-home care expenses until they’re more than 7.5% of your AGI (10% if you are under 65 years old), so some people may save a little bit of money, while others could save thousands. Because of this, you should speak to your accountant or CPA as they’ll have a much clearer picture of what your personal tax situation is.
Using the Medical Care Expense Deduction is just part of several pieces that will make up your care budget. While HomePay can’t take care of this tax break for you, we’re happy to be the solution for the household employment tax and payroll needs you’ll have. Reach out to us today and we’ll onboard your caregiver and make sure your IRS and state tax filing deadlines are always met.