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Tax Deductions of Medical and Dental Expenses: For Primary Tax Filers and Elderly Dependents
| Definition |
Qualifications |
Costs |
| Pros & Cons |
Benefit Types & Limits |
How to Apply |
| Overview of Tax Deductions for Elderly Dependent’s Medical Expenses | ||
While much of this information is relevant year over year, the following information has been reviewed and is accurate for the tax year 2012, which is filed in the calendar year 2013. | ||
Medical and dental expenses can be deducted if their total sum exceeds 7.5% of the tax filer’s adjusted gross income. By deducting these expenses, one's income is lowered and therefore the amount of tax they owe is also reduced.
While tax deductions are not a source of funds for eldercare, a reduced tax burden can enable a family to re-allocate resources to help cover the cost of long-term care. When combined with other options, this might make the difference between being able to afford home care or assisted living.
Medical and dental expenses are deductible in each of the following four tax filing scenarios.
1. When the care recipient is filing his/her own taxes and their personal annual medical and dental expenses exceed 7.5% of their adjusted gross income.
2. When a married couple is filing jointly and their combined medical and dental expenses exceed 7.5% of their combined adjusted gross income.
3. When a married couple is filing separately. Since the deduction is based on expenses as a percentage of income, splitting income between two individuals and filing separately may yield a greater overall tax reduction.
4. When a family member or caregiver is claiming the care recipient as a dependent, they can combine that individual’s medical and dental expenses with his or her own expenses. If the combined expenses exceed 7.5% of their combined adjusted gross income, they can claim the expenses as a deduction.
It is important to note that any of these scenarios may result in invalidating a other deductions. It is recommended to prepare taxes considering all alternatives (or have a tax professional do so) to determine which approach is most beneficial to the taxpayer and family unit on the whole.
Medical and dental expense deductions should not be confused with the Dependent Care Tax Credit, which is meant for dependent care expenses the primary taxpayer incurs to enable them to work instead of caring for their dependent.
Claiming an Individual as a Dependent
In order to claim an individual who requires care as a dependent, there are two essential qualifications. The tax filer must provide over half of the dependent’s financial support, and the dependent must be related or have lived with the tax filer for a full calendar year.
There is an exception to the 50% financial support rule made when several individuals, typically family members, together contribute at least 50% of the support for the elderly dependent. In this case, the contributors can prepare a mutually agreed-upon "Multiple Support Declaration", which allows one of the contributing individuals to claim the elderly as a dependent and deduct that elderly person’s medical expenses. When using a "Multiple Support Declaration", the tax filer needs only to have contributed 10% of the total.
What Can Be Claimed as a Medical Expense?
"Medical and Dental Expenses" include a wide range of expenditures, some of which are not immediately obvious. See IRS Publication 502 for a complete list of qualifying medical and dental expenses. A partial list follows:
• Medical fees from doctors, laboratories, assisted living residences, home health care and hospitals
• Cost of transportation to receive medical care
• Premiums for health insurance and qualified long term care insurance
• Home modifications costs such as wheelchair ramps, grab bars and handrails
• Personal care items, such as disposable briefs and foods for a special diet
• Cost of prescription drugs
• Entrance fees for assisted living
• Room and board for assisted living if the resident is certified chronically ill by a healthcare professional and following a prescribed plan of care. Typically this means that they are unable to perform 2 ADLs or require supervision due to Alzheimer's disease or other conditions.
What Cannot Be Claimed?
• Medical expenses that are reimbursed by health insurance, Medicare or any other program.
• Payments or distributions out of health savings accounts
• Non-medical care to enable the tax filer to be gainfully employed. However, the taxpayer can receive a tax credit for this through the Child and Dependent Care Credit
• Life insurance premiums
What are Tax Deductions vs. Tax Credits?
Tax deductions lower your taxable income, so if your income is $50,000 and you have a $2,000 deduction, then you will pay taxes on $48,000. Tax credits are applied to the taxes you owe. If you owe $3,000 in taxes and you have a credit for $500, then you only have to pay $2,500.
Dependent’s Medical Expenses Deductions vs. Dependent Care Tax Credit
The cost of home care, used to enable the taxpayer to work elsewhere, can be applied either as a medical expense deduction or as a Dependent Care Credit, but not both. For most families, it is advantageous to apply care expenses, which enable you to be gainfully employed, towards a dependent care credit up to the maximum allowed ($3,000), and then apply the remainder of those expenses as medical expense deductions. However, this may not always be applicable.
It can be difficult to determine how to structure one’s expenses and choose between the available tax credits and deductions to get the greatest tax savings. Online tax preparation services, some free ones even, such as TurboTax Calculators and Tips
can greatly facilitate this process as they enable a tax filer to easily examine multiple scenarios and choose the best approach.
Medical and dental expenses are deductible in each of the following four tax filing scenarios.
1. When the care recipient is filing his/her own taxes and their personal annual medical and dental expenses exceed 7.5% of their adjusted gross income.
2. When a married couple is filing jointly and their combined medical and dental expenses exceed 7.5% of their combined adjusted gross income.
3. When a married couple is filing separately. Since the deduction is based on expenses as a percentage of income, splitting income between two individuals and filing separately may yield a greater overall tax reduction.
4. When a family member or caregiver is claiming the care recipient as a dependent, they can combine that individual’s medical and dental expenses with his or her own expenses. If the combined expenses exceed 7.5% of their combined adjusted gross income, they can claim the expenses as a deduction.
It is important to note that any of these scenarios may result in invalidating a other deductions. It is recommended to prepare taxes considering all alternatives (or have a tax professional do so) to determine which approach is most beneficial to the taxpayer and family unit on the whole.
Medical and dental expense deductions should not be confused with the Dependent Care Tax Credit, which is meant for dependent care expenses the primary taxpayer incurs to enable them to work instead of caring for their dependent.
Claiming an Individual as a Dependent
In order to claim an individual who requires care as a dependent, there are two essential qualifications. The tax filer must provide over half of the dependent’s financial support, and the dependent must be related or have lived with the tax filer for a full calendar year.
There is an exception to the 50% financial support rule made when several individuals, typically family members, together contribute at least 50% of the support for the elderly dependent. In this case, the contributors can prepare a mutually agreed-upon "Multiple Support Declaration", which allows one of the contributing individuals to claim the elderly as a dependent and deduct that elderly person’s medical expenses. When using a "Multiple Support Declaration", the tax filer needs only to have contributed 10% of the total.
What Can Be Claimed as a Medical Expense?
"Medical and Dental Expenses" include a wide range of expenditures, some of which are not immediately obvious. See IRS Publication 502 for a complete list of qualifying medical and dental expenses. A partial list follows:
• Medical fees from doctors, laboratories, assisted living residences, home health care and hospitals
• Cost of transportation to receive medical care
• Premiums for health insurance and qualified long term care insurance
• Home modifications costs such as wheelchair ramps, grab bars and handrails
• Personal care items, such as disposable briefs and foods for a special diet
• Cost of prescription drugs
• Entrance fees for assisted living
• Room and board for assisted living if the resident is certified chronically ill by a healthcare professional and following a prescribed plan of care. Typically this means that they are unable to perform 2 ADLs or require supervision due to Alzheimer's disease or other conditions.
What Cannot Be Claimed?
• Medical expenses that are reimbursed by health insurance, Medicare or any other program.
• Payments or distributions out of health savings accounts
• Non-medical care to enable the tax filer to be gainfully employed. However, the taxpayer can receive a tax credit for this through the Child and Dependent Care Credit
• Life insurance premiums
What are Tax Deductions vs. Tax Credits?
Tax deductions lower your taxable income, so if your income is $50,000 and you have a $2,000 deduction, then you will pay taxes on $48,000. Tax credits are applied to the taxes you owe. If you owe $3,000 in taxes and you have a credit for $500, then you only have to pay $2,500.
Dependent’s Medical Expenses Deductions vs. Dependent Care Tax Credit
The cost of home care, used to enable the taxpayer to work elsewhere, can be applied either as a medical expense deduction or as a Dependent Care Credit, but not both. For most families, it is advantageous to apply care expenses, which enable you to be gainfully employed, towards a dependent care credit up to the maximum allowed ($3,000), and then apply the remainder of those expenses as medical expense deductions. However, this may not always be applicable.
It can be difficult to determine how to structure one’s expenses and choose between the available tax credits and deductions to get the greatest tax savings. Online tax preparation services, some free ones even, such as TurboTax Calculators and Tips
Skilled Nursing and Assisted Living
When a dependent, such as an aging parent, is certified chronically ill and is following a prescribed plan of care, then the total cost of skilled nursing or assisted living can be included as medical expenses.
Be Aware That:
• Assisted living residences are able to provide what portion of fees is attributable to medical costs.
• Being claimed as a dependent does not jeopardize one’s eligibility for Supplemental Security Income or Medicaid.
Also Known As:
• IRS Publication 502
• Dependent Medical and Dental Expenses
Age Requirements
There are no age restrictions to use this tax deduction or on claiming individuals as dependents in order to combine medical expenses for tax purposes.
Disabilities / Health Requirements
Strictly speaking, there are no health-related restrictions on claiming individuals as dependents in order to combine medical expenses for tax purposes. However, the number of items that are defined as “medical expenses” is much greater if the dependent is certified chronically ill by a healthcare professional and is following a prescribed plan of care. Typically, this means that the dependent is unable to perform 2 ADLs or requires supervision due to Alzheimer's disease or other conditions.
Family Status
Any person, regardless of family relation, can be claimed as a dependent for tax purposes. However, if he or she is not one of the following
• Parent/Grandparent/Step Parent/Father-in-law/Mother-in-law
• Brother/Sister including Step, Half and In-Law Siblings
• Aunt/Uncle
then the individual in need of care must have resided with the primary tax filer for a period of 1 year.
• Parent/Grandparent/Step Parent/Father-in-law/Mother-in-law
• Brother/Sister including Step, Half and In-Law Siblings
• Aunt/Uncle
then the individual in need of care must have resided with the primary tax filer for a period of 1 year.
Financial Status Requirements
Requirements of the Claimer
In order to claim a dependent and consolidate the dependent’s medical expenses with your own, you must provide over half of the dependent’s financial support for the year in which you are filing. Support is considered in the year in which the bills were paid, not the year in which the services were provided.
There is an exception to the 50%-support rule made when several individuals, typically family members, together contribute at least 50% of the support for the elderly dependent. In this case, the contributors can prepare a mutually agreed-upon "Multiple Support Declaration", which allows one of the contributing individuals to claim the elderly as a dependent and deduct that elderly person’s medical expenses. When using a "Multiple Support Declaration", the tax filer needs only to have contributed 10% of the total.
Requirements of the Dependent
To qualify as a dependent, the individual’s gross income for the year must be less than $3,650. While that sounds very low, certain income sources are exempt; most importantly social security and supplemental security income. Pension income is not exempt.
There is not a hard asset limit for the dependent. However, typically, individuals with even a moderate level of assets often generate income from those assets and are, therefore, disqualified because they exceed the income level limit.
In order to claim a dependent and consolidate the dependent’s medical expenses with your own, you must provide over half of the dependent’s financial support for the year in which you are filing. Support is considered in the year in which the bills were paid, not the year in which the services were provided.
There is an exception to the 50%-support rule made when several individuals, typically family members, together contribute at least 50% of the support for the elderly dependent. In this case, the contributors can prepare a mutually agreed-upon "Multiple Support Declaration", which allows one of the contributing individuals to claim the elderly as a dependent and deduct that elderly person’s medical expenses. When using a "Multiple Support Declaration", the tax filer needs only to have contributed 10% of the total.
Requirements of the Dependent
To qualify as a dependent, the individual’s gross income for the year must be less than $3,650. While that sounds very low, certain income sources are exempt; most importantly social security and supplemental security income. Pension income is not exempt.
There is not a hard asset limit for the dependent. However, typically, individuals with even a moderate level of assets often generate income from those assets and are, therefore, disqualified because they exceed the income level limit.
Veteran Status Requirements
Veteran status is not a factor in claiming a dependent's medical expenses for tax advantages.
Geographic Requirements
To claim a dependent to deduct his or her medical expenses for tax purposes, the dependent must be a U.S. citizen, or national, or a legal resident of the United States, Canada, or Mexico for at least part of the calendar year for which taxes are being filed.
Types of Benefit Payout
Benefits come in the form of reduced overall tax for a family and, therefore, this enables more resources to be applied towards the long-term care of a loved one.
Restrictions on How Payout Can be Used
A tax
deduction does not generate a payout.
Benefits Amounts & Limits
Tax filers can deduct the amount of medical expenses that exceed 7.5% of their adjusted gross income (your AGI is found on form 1040, line 38). Or stated in another way, subtracting 7.5% (.075) of your AGI from your total medical expenses will yield your medical expense deduction.
For example, if your adjusted gross income was $50,000, and your total paid medical expenses were $10,000, your medical expense deduction would be $6,250 as shown in the table below. Assuming a typical tax rate of 16%, the annual tax savings would be approximately $1,000 that could be used to help pay for long-term care.
For example, if your adjusted gross income was $50,000, and your total paid medical expenses were $10,000, your medical expense deduction would be $6,250 as shown in the table below. Assuming a typical tax rate of 16%, the annual tax savings would be approximately $1,000 that could be used to help pay for long-term care.
| Adjusted Gross Income (AGI) |
7.5% of AGI | Medical Expenses |
Medical Expenses - 7.5% of AGI | Medical Exp. Deduction |
Annual Savings |
| $50,000 | $50,000 x 7.5% = $3,750 | $10,000 | $10,000 - $3,750 = $6250 | $6250 | $1,000 |
Time to Receive Benefits
The tax savings would be realized once annually at the time federal taxes are filed. For those filing estimated quarterly tax payments, 25% of this amount would be realized every 3 months.
This Source Can Help For
There are no restrictions on how families can use money saved on their federal taxes.
There are no costs associated with adding an elderly dependent to your tax return.
It is not necessary to apply for tax deductions. When filing a tax return, families need to use a Form 2441 to claim the dependent credit and Schedule A for the medical deduction.
Page Reviewed / Updated - Jan. 2013
