Taxes can be confusing at the best of times, but caregiving can make filing taxes even more complicated, especially if you are hiring someone to care for your elderly family member.
So, how do you go about doing taxes as a caregiver?
This article focuses on some key things to consider about caregiving and taxes, as well as some resources that can help you along the way.
For Yourself
Let’s begin with the role of caregiver. Not surprisingly, being a caregiver will affect your taxes, epsecially if you’re a full-time caregiver.
In particular, you might be eligible for some tax breaks, which may serve to make things easier financially. Taking these into account is certainly important if you are doing taxes as a caregiver.
1. Claiming the family member as a dependent
In some situations, you can claim your family member as a dependent for the purposes of taxes.
If a relative earned less than $3,950 in 2014 (this figure does not count disability and Social Security payments) and the caregiver provides more than half of the support for the relative, then the relative is eligible to be considered a dependent.
Caregivers can receive a tax exception of $3,900 for each dependent that they have, which can go a long way.
Interestingly, your relative doesn’t actually have to be living with you to be classified as a dependent.
However, do take care in calculating your relative’s income, as things like interest on bank accounts and pensions do count towards the total.
2. Claiming for medical costs
You can claim medical deductions for the medical costs of a dependent if the costs accounted for more than 10% of your adjusted gross income from 2014.
If your relative is 65 years of age or older, this percentage drops to 7.5%.
This is particularly relevant if you have a relative with a lot of medical costs.
3. Claiming for other costs
Other expenses are also deductible, such as those for food, bathroom modifications, clothing and transportation, although it is very important that you keep good records.
Home Health Aides and Tax
From a legal perspective, a home health aide is considered to be the employee of the person who hires them.
This means that if you hire the aide yourself, then you are responsible for withholding and paying all of the appropriate taxes. This includes Social Security taxes, payroll taxes and any other relevant taxes for your specific state.
The presence of a home health aide does certainly make the process of doing taxes as a caregiver much more complicated.
If you want to reduce all of this red tape, an alternative is to hire the aide through a home care agency.
When you do this, the agency is considered to be the employer of the aide, so they are responsible for all of the taxes.
The downside of this approach is that hiring through an agency tends to be more expensive than hiring someone yourself.
After all, you are essentially paying for the convenience of not having to do all of the legwork yourselves.
Because of this, some people choose to hire aides under the table and pay them without filing any forms for Social Security or for taxes.
However, this approach is illegal and risky. If you get caught, then you have to pay fines and penalties. It simply isn’t worth the risk. There are a number of reputable agencies you can turn to instead to avoid complications.
Family Members
In some cases, you might be hiring a family member to help care for your elderly relative.
In this case, the taxes become more complicated and what you do depends on specifically on the elderly person’s relationship to that family member and your State laws.
Additionally, when hiring a family member, you need to consider how to deal with taxes on your end and on their end, which can add to the complexity of the situation.
In particular, the family member will probably need to report the income on their taxes and the precise way that they do this varies across situations and States.
The best approach in this case is to seek advice for your specific situation, as the tax code can be confusing at times. You’ll benefit from an expert’s experience to help you navigate through what you need to do.
Resources
Whether you are caring for your relative yourself or are hiring someone else, the process of dealing with taxes can be confusing and complicated.
Additionally, caregiving can be a stressful task on its own, and adding anything to the mix may be the last thing that you want to do.
There are a number of County-run and non-profit groups that offer free or low-cost help with tax preparation.
Checking with a professional even once can help you understand the implications of caregiving on your taxes and avoid any legal trouble or fines down the road.
You can also check out the IRS site, which has a page to help you find free local tax return preparation. This includes tax prep through the Volunteer Income Tax Assistance (VITA) program and the Tax Counseling for the Elderly (TCE) program.
This program offers free tax assistance to people who fall under one of the following categories:
- Make $56,000 or less
- Have a disability
- Those with limited English
Volunteers with the program are certified by the IRS and can help people understand developing an income tax return.
The TCA program is a second program that supports tax help.
It offers free help for all taxpayers and specializes in questions and concerns that are related to issues unique to seniors. As such, TCA sites may be very relevant for people caring for senior relatives.
Local Options
We’ve listed a few options below for Maryland, Washington D.C., and Northern Virginia.
However, each part of the country will have their own services and approaches, so you’ll need to do a little digging around to find services that are relevant to you.
In Maryland
The best place to look for resources is the CASH Campaign of Maryland. CASH is an abbreviation of Creating Assets, Savings, and Hope.
The program offers a variety of services, including financial education classes, financial coaching, and free tax preparation.
In Washington D.C.
Community Tax Aid, Inc. is a site that offers free tax assistance to individuals and families with incomes of less than $60,000 per year.
This site provides services during tax preparation season and also in other parts of the year.
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