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Tax Breaks for Clients with Caregivers

If you’re just joining us, parts one and two of this series covered medical-expense deductions for people with disabilities and IRS restrictions on deductibility of costs associated with schooling children who have physical or mental disabilities. Part three discussed the profit exclusions that allow home sellers to avoid federal and state income taxes on sizable portions of their profits from sales of their principal residences and when sellers with disabilities can avail themselves of a special break.

This article, the final of this series, will focus on other tax breaks that lawmakers crafted specifically for those with disabilities.

Child and dependent care credit. Many people mistakenly believe that they can avail themselves of the credit only if they hire someone to care for their children under the age of 13 or other dependents. However, the credit also applies when the person requiring care is a spouse or a dependent, regardless of age. The key requirement is that the spouse or dependent is physically or mentally “incapable of self-care.” 

For credit purposes, this means an individual who has mental or physical disabilities that prevent her from dressing or feeding herself or tending to personal hygiene without the help of someone else or that require continual attention to prevent her from injuring herself or others.

Suppose your client’s grandfather, who otherwise enjoys good health, has an injury, either permanent or temporary, that requires him to use a wheelchair or stay in bed. The IRS will acknowledge this as a disability. The IRS will also consider suicidal tendencies or other dangerous tendencies to be disabilities. 

However, while payments your client makes to her grandfather’s attendant qualify as care costs, they do not qualify if she places him in a nursing home. However, nursing-home costs might qualify as deductible medical expenses.

When Form 1040 time rolls around and your client claims a credit for the care of her grandfather, she doesn’t have to submit proof of his disability with the 1040. However, to safeguard her credit should the IRS ask questions, it’s wise to get a certification from the attending physician or appropriate authority regarding the nature and duration of the disability.

When the caretaker also does the household chores. The IRS says a person is entitled to a medical deduction for the salary of an in-home caregiver. This is true even if the caregiver hired has no previous nursing experience; what matters is the type of work the caregiver actually performs. The IRS paperwork can become burdensome when the caregiver doubles as a housekeeper. Revenue Ruling 76-106 requires a person to make an apportionment between the time the caregiver spends providing nursing care, such as changing dressings, and the time she spends on nonmedical duties, such as cleaning, cooking and caring for healthy children.

Your client will get a medical deduction only for payments (including what she pays as an employer for social security taxes) toward nursing care, not for payments allocable to household chores.

Meals and lodgings. While your client can deduct the amount she spends on a caregiver’s meals, she must apportion such costs in the same way she apportions wages. If only half of the caregiver’s time is spent on nursing, then only half of the meals are deductible. Stricter rules apply when your client provides lodging. There is no deduction unless your client can show that she made out-of-pocket expenditures directly attributable to the caregiver’s lodging that were greater than normal household expenses, such as rental for an extra bedroom or money spent on additional utilities.