Some people choose to be their parent's primary caregiver. However, this can strain your personal finances. Luckily, there is new tax relief available to caregivers for the fiscal year of 2018.
What should caregivers expect at tax time?
There were a few changes to caregiver tax relief laws for the fiscal year of 2018. Prior to 2018, you could claim a deduction for your household or yourself if you were a caregiver. Other major changes have taken place as well.
In the 2018 tax act, you can now deduct itemized medical expenses that exceed 7.5 percent of your adjusted gross income (down from 10 percent in previous years). You could also claim your parents as a dependent if you provided more than half their support.
The following are relevant tax items for caregivers of parents:
- Dependent care credit: If you pay for the care of an adult dependent, $500 credit.
- Elderly or disabled credit: If you are disabled or were 65 or older at the end of 2018.
- Claim your parent as a dependent: If their gross income was less than $4,150 and meets IRS eligibility requirements.
- If you hire a medical caregiver privately or through a service: You may need to pay state and federal employment taxes. You should have a daily log of their treatments.
- Medical expenses: You can take a standard deduction or itemize qualifying expenses that exceed 7.5 percent of your adjusted gross income (AGI).
- Long-term care insurance: Most long-term care insurance policies can be itemized
Keep in mind that only one person can claim the adult as their dependent. If you normally file jointly with a spouse, or your siblings also contribute to your parent’s expenses, this could complicate matters.
Additionally, if you and your spouse have a joint account, consider opening one under just your name. It could be easier to track deposits and expenses through it that are directly related to your parent.
How does this affect residents of Massachusetts?
When you are a primary caregiver for your parents, state and federal taxes apply. In Massachusetts, there are local laws that provide tax credits to family caregivers. You can itemize state-qualified expenses to help defer costs.
If you as an individual make less than $75,000 AGI or less than $150,000 as a couple, the amount of tax credit is equal to the eligible expenses (up to $1,500). This can make a real difference when it comes time to pay your taxes. Financial advisors can help determine if you qualify for caregiver tax relief based on your individual situation.