Is Private Home Care Tax Deductible?
Understand the specific IRS rules for deducting private home care. This guide covers the essential requirements for medical need and which services are eligible.
The costs of private home care represent a significant financial commitment. The Internal Revenue Service (IRS) provides a way to alleviate this burden through tax deductions, but the rules are specific. Eligibility depends on the medical needs of the person receiving care and the nature of the services provided.
Qualifying for the Medical Expense Deduction
To deduct private home care expenses, the care must be for a qualifying individual. This can be the taxpayer, their spouse, or a legal dependent. A dependent does not need to live with the taxpayer, but the taxpayer must provide more than half of their financial support during the year.
The core of the qualification rests on whether the individual is considered “chronically ill” under federal tax law. This is met if a person is unable to perform at least two Activities of Daily Living (ADLs) without substantial assistance for at least 90 days. These ADLs include eating, bathing, dressing, toileting, maintaining continence, and transferring, such as moving from a bed to a chair.
The second path to qualifying as chronically ill involves cognitive health. An individual who requires substantial supervision to protect them from threats to their health and safety due to a severe cognitive impairment, such as Alzheimer’s disease or other forms of dementia, also meets the IRS standard.
A formal “plan of care” is required for claiming these expenses. This plan must be prescribed by a licensed health care practitioner, which can include a doctor, registered nurse, or a licensed social worker. The plan outlines the specific medical and personal care services required by the chronically ill individual.
Identifying Deductible Home Care Services
Once an individual qualifies, the focus shifts to which services are deductible. The IRS allows deductions for “qualified long-term care services,” defined as necessary diagnostic, preventive, therapeutic, treating, and rehabilitative services, along with maintenance and personal care. This includes hands-on personal care that assists with the Activities of Daily Living.
Services like helping a person bathe, dress, or eat are deductible. Health-related tasks a caregiver might perform, such as administering medication or monitoring vital signs, are also eligible. These nursing-type services do not need to be performed by a licensed nurse as long as they are the type of services a nurse would provide, according to IRS Publication 502.
Services related to general household upkeep, like cleaning or cooking meals not specifically for the person receiving care, are not deductible. An exception exists when these household tasks are a small part of a caregiver’s duties, which are primarily focused on personal and medical care. For instance, if a caregiver spends most of their time on personal care but also does light housekeeping in the patient’s room, the full payment may be included.
If a caregiver performs both deductible medical services and non-deductible household duties, the taxpayer must allocate the expense. For example, if a caregiver is paid $400 a week and spends 25% of their time on non-medical household chores, only 75%, or $300, of the payment is a deductible medical expense. Careful record-keeping is required to substantiate the time spent on each activity.
Calculating and Claiming the Deduction
After identifying the total amount of eligible home care expenses, the next step involves claiming the deduction. A significant limitation is the Adjusted Gross Income (AGI) threshold. Taxpayers can only deduct the amount of total medical expenses that exceeds 7.5% of their AGI. For example, if a taxpayer’s AGI is $100,000, the threshold is $7,500, and if their total qualifying medical expenses are $20,000, they can deduct $12,500.
To claim the deduction, a taxpayer must choose to itemize their deductions on their federal tax return instead of taking the standard deduction. The decision to itemize should be made by comparing the total of all itemizable expenses, including medical costs, to the standard deduction amount for their filing status. The medical expense deduction is reported on Schedule A (Form 1040).
A more direct way to receive a tax benefit is by using pre-tax funds from certain health-related accounts. Paying for qualified long-term care services with a Health Savings Account (HSA) or a Flexible Spending Account (FSA) can be advantageous. When funds from these accounts are used, the payments are made with money that has not been taxed. This method bypasses the 7.5% AGI threshold, allowing a full tax benefit on every dollar spent.