Aging Advocate and Senior Care Expert
Tax deductions offer much-needed relief from federal income tax. Certain occupations like self-employed caregivers may qualify for several tax-deductible expenses.
These tax-deductible benefits can apply to hefty medical expenses, retirement planning, and travel costs. Tax deductions ease the cost burden of being a self-employed caregiver.
Read on to learn more about tax benefits for self-employed and family caregivers. We’ll also discuss caregiver expenses that are non-deductible.
How Does the IRS Define a Self-Employed Caregiver?
Before understanding which deductions may apply to you, make sure you qualify as a self-employed caregiver. That way, you’ll know if you’re required to pay self-employment tax.
The Internal Revenue Service (IRS) says that self-employed caregivers are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, which is called self-employment tax.
For instance, a self-employment tax will likely apply to your situation if you own an adult care home that assists multiple clients in addition to caring for your loved one.
If you’re receiving income as a caregiver from the individual you’re caring for and have taxable income, you owe a self-employment tax.
If you’re caring for a spouse or close relative free of charge, then, as a taxpayer, you don’t owe a self-employment tax.
If you’re caregiving for a close family member and receive money from a state agency you still don’t pay employment taxes because there’s no engagement in a trade or business offering caregiving services.
Which Tax Benefits Apply to Independent Contractor Caregivers
Federal tax law grants multiple tax benefits for self-employed caregivers. Examples of qualifying caregiving expenses include:
Medical School
You’re allowed a deducted tuition fee if you’re attending an educational institution related to the caregiving profession. The education center must be part of the U.S. Department of Education’s financial aid program to qualify as tax-deductible.
The option applies to caregivers that only work full-time during the day. Luckily, there’s no minimum attendance eligibility, but you should be present for one class at least per year. The maximum amount granted by the program is an annual $4,000.
Health Insurance
As a self-employed caregiver, you may be allowed a health insurance deduction. In turn, it can reduce the amount of health care premiums, giving you access to dental and medical care.
Uniforms
Self-employed caregivers usually wear nurse scrub attire. In this case, you are allowed a deduction on the uniform’s retail price and maintenance.
You can deduct a portion of dry cleaning costs and the purchase price. The tax-deductible only applies if you don’t wear the uniform outside your work environment.
Mileage
In home caregivers likely use their personal vehicles to commute between client households. They may also take their clients to doctor’s appointments or run job-related errands. For this reason, you can deduct your travel expenses from each tax return.
You must accurately track the mileage with a mileage log to be eligible for tax benefits. You’ll need to keep repair invoices and gas receipts.
Tools and Equipment
You can count medical equipment, like blood pressure cuffs, stethoscopes, and transfer belts that you purchase to assist your clients as tax-deductible. That said, the tool’s purchase price tends to depreciate if it can last more than one year.
Capital Expenses
As an independent caregiver, you may have taken time to advertise yourself before launching your business. For example, you may have created a website, purchased a domain name, business cards, and flyers. You can list these fees on your tax return.
Retirement Planning
For self-employed caregivers, retirement planning involves selecting and contributing to retirement savings plans specifically designed for non-employee individuals or small business owners. These plans offer tax benefits and can help caregivers save for their future financial needs.
Some common retirement plan options for self-employed caregivers include:
- SEP-IRA (Simplified Employee Pension Individual Retirement Account)
- Solo 401(k): Also known as an Individual 401(k) or a One-Participant 401(k), a Solo 401(k)
- SIMPLE IRA (Savings Incentive Match Plan for Employees)
- Traditional or Roth IRA
What to Consider with Family Caregiver Tax Deductions
You’re still eligible for tax benefits if you’re not a professional caregiver and are only helping a relative or close friend. You need to list the latter as a dependent on your tax forms to benefit from the deducted expenses.
They must be eligible to become a dependent. That primarily relies on factors like their income status, legal residency, and nature of the relationship. The portion spent on medical expenses from your income also factors in these calculations.
For instance, if you’re living with your loved one and paying more than 50% of the living expenses, they can count as your dependent. They need to have legal residency in the U.S., an I.D., and a gross annual income lower than $4,300.
Which Tax Benefits Apply to Family Caregivers?
If you’re caring for a loved one alone, you may qualify for some additional tax benefits. Here are some below.
Medical Expenses
Medical insurance may not entirely cover your loved one’s health care expenses. You may find yourself needing to pay for their medical expenses. In this case, you can use these as a deduction. Before doing so, calculate the expenses and make sure they make up at least 7.5% of your annual gross income.
To illustrate, if you earn $60,000 annually, the first $4,500 spent won’t qualify for a deduction. If the medical expenses reach $10,000, you can receive a $5,500 tax break since the IRS deducted the amount from the initial $4,500.
What counts as medical expenses? It can include the cost of diagnosis, prevention, treatment, and cure for a disease. You can also add the cost of travel to doctor’s appointments, assisted living expenses, and a in-home caregiver to help with your loved one’s Activities of Daily Living (ADLs).
For example, incontinence supplies can be considered a medical expense if a loved one has a diagnosis of incontinence. You can also offset the expense of products like adult briefs, bed pads, pullups, and wipes by exploring free and low-cost incontinence supplies for seniors in your area.
Home Modifications
Home modifications to accommodate a senior’s medical condition(s) may also count. This includes ramps for wheelchair users and grab bars. Vehicle modifications also work similarly.
Food Expenses
Meal expenses are, in some instances, partially deductible. You can deduct over 50% of the amount paid for your loved one or the household. You can also take out a portion of paid meals for a qualifying person.
Non-Tax Deductible Expenses for Self-Employed Caregivers
Non-deductibles are typically resources or costs related to the household rather than family members requiring care.
Examples of expenses that won’t qualify as tax breaks:
Travel Expenses
Travel expenses don’t count as a tax benefit if they’re not directly contributing to your caregiving role. For instance, you can’t record the mileage of a trip you took to your friend’s house since it’s a personal trip.
Entertainment Expenses
Entertainment expenses usually count as non-deductible, whether it’s a sporting event or watching a movie. Installing an entertainment feature like a pool won’t be eligible for tax benefits.
Tips for Caregivers Filing Taxes
Tips to help you back up your tax deduction claim:
Pay Estimated Taxes
Estimated tax payments are periodic payments made by self-employed individuals, freelancers, and others who do not have taxes withheld from their income by an employer. These payments are intended to cover income tax and self-employment tax liabilities throughout the year.
Maintain Records
When the time comes to file your taxes, you’ll want to keep detailed records of every qualifying expense. That way, you’re less likely to miss any expenses that qualify and the records will offer documentation during tax year audits.
On top of receipts, you also need to keep records to support your documentation. For example, if you’re filing for a request to make your loved one a dependent, you need evidence that they’re living with you and that you have caregiver expenses related to their care.
Understand Your Options
If you’re a family caregiver, you’ll want to be aware of several options when you go to file your taxes. One of these includes filing as the head of household, which can increase your tax benefits.
Another option worth considering is applying for a tax credit. Unlike a tax deduction that reduces the amount of tax taken from your income, tax credits directly take out the tax amount you owe. You can apply for the child and dependent care tax or the tax credit for other dependents.
In Summary
Whether you’re a self-employed caregiver or caring for a loved one, it’s important to understand potential tax deductions that will lower your tax bill.
Taking advantage of these tax benefits can ease the financial burden of a family caregiver and increase your profit as a self-employed caregiver.
The IRS offers multiple options for deductions, such as medical, educational, and travel tax-deductible expenses. Your job is to keep tabs on these expenses for an accurate record of your tax obligations.
Frequently Asked Questions
Yes, a caregiver can potentially claim mileage on their taxes if they are using their personal vehicle for work-related tasks, such as transporting the person they’re caring for to appointments or running errands on their behalf. However, it’s important to consult the IRS guidelines and tax laws as specific requirements and eligibility may vary.
Yes, there are tax benefits available to caregivers in some countries. In the United States, for example, caregivers can claim the person they’re caring for as a dependent, which may result in deductions and tax credits. Review the tax laws and eligibility criteria in your state to determine the specific benefits that apply to your situation.
Caregiver expenses can be tax deductible, depending on the specific expenses and the tax laws. For example, certain medical expenses related to caregiving, including a portion of the caregiver’s salary, may be deductible if the person being cared for is considered a dependent. It’s important to consult tax guidelines with a tax professional to understand the eligibility and requirements for deducting caregiver expenses.
When it comes to tax credits, the Internal Revenue Service focuses on the relationship between the taxpayer and the person being cared for. A caregiver can be someone who provides assistance to a person who is unable to perform activities of daily living, such as a child, an elderly person, or an individual with disabilities. To claim certain tax benefits, the person being cared for must typically meet the criteria for being a qualifying child or relative as a dependent. It’s important to review official guidelines and consult a tax professional to understand how the caregiver role applies to your specific tax situation.
Amie Clark, BSW
Aging Advocate and Senior Care Expert
Amie has worked with older adults and their families for the past twenty-plus years of her career. Her senior care knowledge is based on her experience as a social worker, family caregiver, and senior care consultant. Learn more about Amie here.