This information has been reviewed and is accurate for the tax year 2016, which is filed in the calendar year 2017.
Those born after January 2, 1951 may still make a deduction, but their medical and dental expenses must exceed 10% of their adjusted gross income. By deducting these expenses, one’s income is lowered. 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 care. When combined with other options, this might make the difference between being able to afford home care or assisted living. Furthermore, lowering one’s adjusted gross income may help make one eligible for other forms of federal and state assistance.
Medical and dental expense deductions should not be confused with Dependent Care Tax Credit. This credit is meant for dependent care expenses the primary taxpayer incurs to enable them to work, or look for work, rather than caring for their dependent.
Medical and dental expenses are deductible in each of the following four tax filing scenarios for those born prior to January 2, 1951. For those born after this date, 7.5% needs to be replaced with 10%.
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.
Any of these scenarios may result in invalidating 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.
There is an exception to the 50% financial support rule made when two or more 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.” This 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. Make note, the individual who is deducting the expenses can only use the amount they personally paid.
When a dependent aging parent is certified chronically ill and following a prescribed plan of care, then the total cost of skilled nursing or assisted living can be included 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. Worth noting, if a senior is certified as chronically ill, the list of eligible expenses is expanded.
The cost of home care, used to enable the taxpayer to work outside the home while care is provided for a dependent, can be applied either as a Medical Expense Deduction or using the Dependent Care Credit, but not both. For most families, it is advantageous to apply care expenses, which enable you to be gainfully employed, towards the Dependent Care Credit up to the maximum allowed (as of 2017, up to $3,000 in expenses may be used to calculate the credit), and then apply the remainder of those expenses as Medical Expense deductions. However, this may not always be applicable.
Tax filers can deduct the amount of medical expenses that exceed 7.5% (or 10%, based on the age of the individual) 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.
|Adjusted Gross Income (AGI)
|7.5% of AGI
|Medical Expenses – 7.5% of AGI
|Medical Exp. Deduction
|$50,000 x 7.5% = $3,750
|$10,000 – $3,750 = $6250