It's fast approaching that time of year again…tax season. We are often asked about the deductibility of home care on your federal taxes. So we wanted to provide some key information…
Know How a Relative Qualifies as a "Dependent" on Your Return
How a relative qualifies as a "dependent" is based on two qualifications. First qualification is their yearly income. For example in 2014, their total income (not including nontaxable Social Security or disability payments) has to be less than $3,950. The second qualification was whether or not a caregiver supplied more than 50% of the relative's support. If these 2 requirements are met, you will be able to take the standard deduction for each dependent.
Know When You can Claim a Tax Benefit for a Dependent's Medical Expenses
Again, this is based on two qualifications: first, you must supply more than 50% of their support. Second, your total medical costs must represent more than 10% of your adjusted gross income. One slight difference to note is that if your dependent is 65 or older, the percentage drops from 10% to 7.5%*.
Know What Other Expenses You can Claim
You would be surprised at what expenses you can claim when taking care of a dependent. The following list can make sure you squeeze every penny for your tax refund.
Other Expenses to Claim:
Bathroom or other Home Modifications
Hospitalization (not covered by health care plan)
Health Care Plan Payments (not paying for costs covered by Medicare)
Hearing Aid Devices
Wigs (if caused by a medical condition)
Quit Smoking Programs
Know What Form to Use for the State of California
Be grateful…not every state in America offers a dependent credit. Thankfully, California is one of them. When it comes time to do your taxes, make sure that Form 3506 is filled out ("Child and Dependent Care Expenses Credit – Form 3506).
Know Who Can Claim a Dependent
Sometimes this can get tricky when one or more sibling is assisting in the costs of taking care of an ailing relative. Unfortunately, only one person can claim the dependent credit on their taxes. However, it doesn't have to go to the one that they are living with. This tax credit is different in that it only has to be a relative but they can either be living with you or on his or her own. Also, it can be a non-relative but they have to be in your residence for more than half a year.
As usual, there is a caveat when it comes to the IRS. There is a Form 2120 for Multiple Support Declaration but it is a complicated process that if your family wants to fill it out should be handled by a tax professional.
Know How to Keep Your Dependent Paperwork Safe
Each year, Homecare California provides our clients with documentation of their home care expenses. We recommend keeping receipts/copies of all medical records, prescriptions, medical equipment, etc. in case you are asked by the IRS to produce them in case of an audit.
If you would like to learn more about our services, feel free to visit our services overview page, contact one of our care managers or download our free guide on home care. The IRS information is also available here.
This article is for reference only. All tax questions should be referred to the IRS or tax professional. *