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Tax Deductions and Credits
As a caregiver, you likely pay for some care costs out-of-pocket. Because of this, you may qualify for tax benefits from the Internal Revenue Service (IRS). Tax rules are complex and can change. Be sure to get advice from your tax adviser or accountant before filing your returns.
The person with dementia may be considered your dependent for tax purposes. If so, you may be allowed to itemize his or her medical costs. Currently, you may deduct only the amount by which your total medical expenses exceed 7.5 percent of your adjusted gross income. Beginning in 2013, you may deduct only the amount by which your total medical expenses exceed 10 percent of your adjusted gross income. Only expenses that have not been reimbursed by insurance can be counted toward the medical expense deduction.
See IRS Publication 502: Medical and Dental Expenses, for a complete list of allowable expenses.
Here's a brief list:
- Medical fees from doctors, laboratories, assisted living residences, home health care and hospitals
- Cost of prescription drugs
- Cost of transportation to receive medical care
- Home modifications costs such as grab bars and handrails
- Personal care items, such as disposable briefs and food
See IRS Publication 501: Exemptions, Standard Deductions and Filing Information to learn more about claiming the person with dementia as a dependent.
If you paid someone to care for the person with dementia so you could work or look for work, you may be able to claim the "Child and Dependent Care Credit" on your federal income tax return. If eligible, you would be allowed a credit of up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
- You must have earned income
- The person with dementia must be unable to physically or mentally care for him or herself
- The person with dementia must be claimed as a dependent on your tax return
See IRS Publication 503: Child and Dependent Care Expenses for more information.
TIP: If you pay someone to come to your home and care for the person with dementia, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See IRS Publication 926: Household Employer's Tax Guide.
If the person with dementia is a dependent under the tax rules, you might be able to use your own workplace flexible spending account (FSA). A flexible spending account allows payment for out-of-pocket medical expenses and dependent care expenses with pretax dollars, for a potential savings of about 20 to 30 percent.
Many states have additional tax deductions or tax credits to provide financial relief to caregivers. These tax programs build on the federal tax credit, which reduces the amount of income taxes a family owes. Each state program differs by name and eligibility requirements.
Help Is Available
The Internal Revenue Service (IRS) offers free tax forms and publications explaining various tax deductions and credits.
AARP's Tax-Aide program provides free tax preparation and counseling information to all low and middle-income taxpayers, even if you are not an AARP member.
Note: This information is not intended as tax advice. The determination of how tax laws affect a taxpayer depends on the taxpayer's situation. A taxpayer may be affected by exceptions to the general rules and by other laws not discussed here. Therefore, taxpayers are encouraged to seek advice from a competent tax professional.
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