Tax Breaks for Caregiving Expenses Help Sandwich Generation

February 15, 2012

“Tax Breaks for Caregiving Expenses Help Sandwich Generation, ” December 8, 2011

Original article written by Ashlea Ebeling

 

There may be a tax-deductible medical expense for caregiver expenses.

 

If a person being cared for has long-term care insurance that covers caregiving expenses, a tax-deduction cannot be taken as well –as this would be “double-dipping.” In other words, the long-term care insurance plan would pay for caregiving expenses before a tax deduction could be taken.

 

In order to get a tax deduction, the client must be considered “chronically ill” with a diagnosis such as dementia. A licensed health care practitioner must prescribe the care plan. Medical expenses must be itemized on the tax return and must be greater than 7.5% of the client’s adjusted gross income.

 

What is defined as “medical/caregiver expenses” includes:  wages, employment taxes, meals, utilities and rent for a larger apartment needed to house a live-in caregiver. Renovations needed to make a home accessible are also included and would count in the itemization of medical expenses.

 

What if Mom’s kids are paying for her care? If an adult child, for instance, a son, is paying more than half of Mom’s total living expenses, he can claim Mom as a dependent on his tax return. He can also deduct medical expenses for Mom including caregiving expenses – if they total more than 7.5% of the son’s adjusted gross income.

 

Another option for a tax break:  if the son’s employer offers a flexible savings account for dependent care, he could contribute $5,000 pretax into that account per year. The son’s mother must be his dependent and must live in the son’s home for at least half the year to qualify as an “eligible dependent.” Typically these accounts are used for expenses for paying someone to watch your kids while you work, but they can work for “sitting” services for Mom too.

 

Some baby-boomers are saving for future out-of-pocket healthcare expenses by putting money into a pretax health savings account. Others are buying long-term care insurance as the premiums can be tax deductible. It pays to study-up on the tax breaks now to plan for the future.