Tax Strategies & Credits

Tax Planning: How to Deduct the Cost of Elder Care

Tax Planning: How to Deduct the Cost of Elder Care

The high cost of medical care is very much in the news these days, and this trend is likely to continue as America's Baby Boom generation grows older and needs more assistance. Spouses and adult children of those in need of medical care and self-care are finding themselves paying for nursing homes and other forms of help, and it is natural to have questions about whether any of those costs - as well as the cost of help within the home - are tax deductible. The answer varies depending upon the type of services provided, as well as the reason behind them.

When a person is living in and receiving care in a home for the aged, a nursing home or any type of assisted living facility, they are generally able to deduct all costs as a medical expense as long as the reason for the stay is that they are either incapable of self-care or that there is a medical need for the care. Meals and lodging are deductible in these cases. However, if the person has chosen to be in the facility for non-medical reasons, then neither their food or lodging are tax deductible, though their medical care costs are.

Some people prefer to remain in their home or the home of a loved one rather than in a nursing facility, and in these situations it is common for care providers to be hired to work in the home. The duties of these professionals can vary greatly, and often include both nursing services (which include such tasks as administering medication and providing assistance with hygiene, feeding, and mobility) and help that is more geared towards household chores. Though the housekeeping services are not a deductible expense, all of the nursing services are, so an allocation is required to provide a billing distinction. It is important to note that an in-home care provider does not need to be a nurse for the services to qualify as medical - they simply need to be providing the same services that a nurse would provide.

When you have a household employee, you as employer are responsible for withholding their share of both Social Security and Medicare taxes, which they are required to pay in the same way as any other worker in the United States. You also need to ay your own payroll taxes, but there are special rules that apply to household employees that make the process much simpler. You are able to pay federal payroll taxes on an annual basis at the same time that you submit your individual 1040 tax return, and are not required to withhold federal income tax until both you and the employee agree to do so. You are, however, required to provide the employee with a W-2 and that form must also be provided to the IRS. This entails applying for a federal employer ID number (FEIN) as well as a state ID number so that you can submit state payroll taxes. Most states have similar reporting and payment rules as the federal government, allowing for annual payments.

As an employer, you are able to allocate the portion of your Social Security, Medicare, and federal and state unemployment taxes that goes to deductible medical expenses as such, and to write them off.

Household employees can provide invaluable help, but it is important that you remain in compliance with all state and federal tax rules when employing them.

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Karen C. Drescher, CPA, CGMA

Karen C. Drescher, CPA, CGMA

Whether it is helping a individual or a Georgia small business with their taxes, or offering to be a backstop through their difficulties, Karen is always there for her clients. When you are a client of Karen's, she always tries to make you feel comfortable in a casual and friendly environment.

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