Our Ask An Angel correspondent is Arlene Petersen, Certified Senior Advisor and Life Care Navigation Specialist in the area of senior home care.
Q: I am a caregiver for a family member. Are there any tax benefits I should be aware of?
A: Caregiving might be a little less taxing this year if you are one of the many people eligible for tax exemptions for care. You may be eligible to declare your parent or other elderly relative as a dependent for a tax deduction, or to deduct their medical expenses from your taxes.
As you prepare your 2011 return, I have a few tips for determining your possible tax benefits. Remember, these tips are guidelines only. It is strongly recommended that you consult with a tax advisor before submitting your return.
In order to declare your elderly relative as your dependent, you both must meet certain criteria:
1) You must be related to the person. If you are caring for your parent, grandparent, stepparent or parent-in-law, you may be eligible for a caregiver tax exemption.
2) The person you are caring for must not have received more than $3,700 in income in 2011. This figure does not include social security payments.
3) You must have provided more than 50 percent of the personās living expenses, including housing, food, dental care, transportation, and other similar expenses in 2011. The person you are declaring as your dependent does not need to live in your home ā which means they may be living in their own home or a care facility, but you must be paying for more than 50 percent of their expenses.
If your situation meets all the above criteria, you may be eligible to claim your relative as a dependent on your 1040 form, which can equate to a reduction of your taxable income by $3,700 for the year.
If your family is dividing the duties of caring for an individual ā for example, more than one sibling is contributing to the care of a parent – you may still be eligible for the tax exemption. However, only one person can declare someone as a dependent in a single year. Each sibling must provide at least 10 percent of the parentās care, and combined, the siblings must be providing for more than 50 percent of the parentās care. Many families choose to take turns each year as to who will receive the tax exemption for caring for a relative. In this case, the person who is declaring the parent as a dependent must fill out a āMultiple Support Declarationā and submit it with their tax return. All of the other siblings must sign the form to claim that they will not take the exemption on their own tax returns. You can find the form on the IRS site: www.irs.gov/formspubs/article/0,,id=243943,00.html
If you are not able to declare your relative as a dependent because they earned more than $3,700 last year but you still provide more than 50 percent of their expenses, you may still be able to receive tax benefits by deducting their medical expenses on your tax return. The IRS allows caregivers to deduct costs incurred from a parentās healthcare, such as hospitalization, prescription drugs, dental care, and long-term services. The deduction is limited to medical expenses that are in excess of 7.5 percent of the caregiverās adjusted gross income. You can obtain a full list of deductible medical expenses from the IRS here: www.irs.gov/pub/irs-pdf/p502.pdf
In addition to these federal tax benefits, some states also offer tax incentives for caregivers. Since tax laws are complex, you should always consult with a tax expert before finalizing your tax return. The AARP FoundationTax-Aide program provides free tax preparation and counseling information to all low- and middle-income taxpayers, even if they are not AARP members. For more information, call 1-888-227-7669 or visit www.aarp.org/taxaide
Have a question for our angel correspondent? You can send our angel an email to apetersen@visitingangels.com or send your question via mail to Ask An Angel, 65 Woodbury St., South Elgin, IL 60177.
