The Tax Implications of Caregiving: Credits, Deductions, and More

If you’re caring for an elderly loved one, you may be able to claim them as a dependent on your income taxes. Doing so can qualify you for what’s known as the Credit for Other Dependents, which offers a maximum credit of $500 per dependent.^[01]

You have to meet the following requirements to claim your parent as your dependent:^[02]

• You can’t be claimed as a dependent by someone else.
• Your parent can’t file a joint return with their spouse, unless it’s to claim a refund in specific tax situations.
• The person you’re claiming must be either a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Mexico or Canada.
• They must be a parent, step parent, or another direct relative, such as an aunt or uncle. Foster parents don’t fit into this category, unless they’ve lived with you all year.
• Their income for 2023 must be less than $4,700.
• You must pay for half or more of their support for the year.

If you’re unsure whether you can claim your parent or another relative, use the IRS’ interactive tool to see if your relative qualifies as a dependent. You can also discuss your tax situation with your tax preparer.

Claiming a dependent with a multiple support agreement

If you and your siblings collectively provided more than 50% of your parent’s support in 2023, only one person can claim their parent as a dependent. Any sibling who paid 10% or more can qualify to claim their parent. However, the other siblings must sign the Multiple Support Declaration stating that they won’t claim their parent as a dependent.^[03]

Filing as head of household when claiming your parent as a dependent

Filing as head of household may increase the amount of credit you receive when claiming a parent as a dependent. However, you can’t file as head of household if you’re claiming a dependent with a multiple support agreement.^[03]

If you meet the following requirements, you may benefit from filing as head of household:^[02]

• You’re unmarried or “considered unmarried” on the last day of the year.
• You’re eligible to claim your parent as a dependent based on the above criteria, even if they don’t live with you full-time.
• You paid more than half the cost of mortgage, rent, or managing your parent’s home.

Caregivers who are working or looking for work likely spend money on a home care aide or on adult day care for their loved one. (If you’re married filing jointly, this could also refer to your spouse’s work or job search.) For the 2023 tax year, you can claim up to $3,000 in caregiving costs for one person, or up to $6,000 for two or more people.^[04] And, while this credit mentions a dependent, you may still qualify for it if you meet the partial dependency qualification explained further below.

To receive the child and dependent care credit, you must meet the following qualifications:^[04]

• Cohabitation. Your elderly relative must have lived with you for at least six months during the tax year.
• Partial Dependency. They must either qualify as your dependent or meet all above qualifications, except having a maximum income of more than $4,700 in 2023 or filing jointly with their spouse.
• Incapacity. Your relative must be physically or mentally incapable of caring for themselves.
• Employment. You pay for a home care worker, adult day care, or other assistance to care for your loved one while you work or look for work.
• Spousal employment. If you’re married, your spouse must also work, be a full-time student, or be disabled.

You can work through your tax situation using the IRS’ interactive tool for the child and dependent care credit. It’s also a good idea to discuss this tax credit with your tax preparer if you have any questions.

Let our care assessment guide you

You may be able to deduct some of the medical expenses you helped cover for your parent. However, they’re deductible only after they make up more than 7.5% of your annual taxable income. It’s also helpful to keep in mind that all your own medical expenses can count towards this 7.5% figure. So, for example, you can count your own prescriptions, medical care for other dependents, and your parent’s medical expenses when itemizing for this deduction.

You can deduct your parent’s medical expenses if you’re claiming them as a dependent. It’s also possible to deduct the medical expenses of someone who meets the dependent requirements except for one or more of the following situations:^[05]

• Their taxable income in 2023 was more than $4,700.
• They filed a joint return with their spouse.
• Someone can claim you as a dependent.

Qualified medical expenses are generally medical and dental expenses paid to a care provider. Medical expenses that can be deducted include:

• Premiums for Medicare Part B and Part D, as well as supplemental insurance
• The cost of prescription drugs or insulin
• Dental treatment, including X-rays, oral surgery, and fillings
• Payments made for nursing services
• In-home medical equipment or mobility improvements required for medical care
• The portion of a nursing home or long-term care facility’s entry fee designated for medical care
• Transportation to medical appointments
• Surgeries or other in-patient procedures

Check IRS Publication 502 for more details and a full list of qualifying ailments.

Senior living medical expenses

For senior living expenses to be qualify as a tax deductible medical expense, the resident must be considered “chronically ill.” This means a doctor has certified that the resident either:^[05]

• Cannot perform at least two activities of daily living, OR
• Requires supervision due to cognitive impairment (such as Alzheimer’s disease or another form of dementia).

In addition, personal care services must be provided according to a plan prescribed by a licensed health care professional. A doctor, nurse, or social worker must prepare a plan that outlines the daily services and care a resident will receive. Most assisted living communities create care plans for residents, which can be used to determine which services are tax deductible. Rent and meals in senior living communities generally don’t qualify as deductions, but medical care services offered on-site may qualify.

As with other medical expenses, qualifying senior living expenses must also exceed 7.5% of annual income to be tax-deductible.

Read more:Is Assisted Living Tax Deductible? What You Need to Know

Talk with a Senior Living Advisor

Filing taxes as a caregiver can be complicated and you’ll need several documents to get you started, especially or itemized deductions.

Determine if you’re claiming an elderly loved one as a dependent or filing separately from your parent. Use the above information to decide if your aging relative qualifies as a dependent and if you’ll be receiving a caregiver tax credit.

Gather records. Be sure you have previous years’ returns available for both you and your parent. Reviewing documents from the past three years can often help prepare you for filing.

Organize documents. Use a file folder or online program to keep track of important documents throughout the year. Some things to keep track of include:

• Bank statements
• W-2 forms
• 1099 forms
• Payroll stubs
• Receipts from tax-deductible medical expenses
• Caregiving expense receipts
• Documentation from senior living communities
• Dividend distribution and gain and loss statements
• Donation receipts
• Real estate transactions
• Receipts from estimated or quarterly taxes paid throughout the year

File electronically. Filing electronically is often more efficient than filing by mail. Plus, most tax prep software offers reviews before submission. Most electronic refunds are sent by direct deposit within 20 days.

Double-check. Sometimes, small errors can lead to serious consequences. Review everything from receipts to income amounts before filing, or consider having a tax professional look over your work.

Consider asking for help. We suggest consulting a tax professional with any questions or concerns. Unfortunately, errors can lead to audits or other future consequences. The IRS website recommends seeking local resources or free help from the following organizations:

• Free File. This program lets you prepare and file your federal individual income tax return for free using brand-name, tax-preparation-and-filing software or Free File fillable forms. However, state tax preparation may not be available through Free File. You may qualify for free online federal tax preparation, e-filing, and direct deposit or payment options.
• VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their tax returns. Download the free IRS2Go app, or call 800-906-9887 for information on free tax return preparation.
• MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military OneSource.
• IRS. IRS Free Fillable Forms, which can be completed online and then filed electronically regardless of income.