Essential Tax Deductions and Credits for Caregivers

Caring for elderly relatives is a significant and often challenging responsibility many families take on with love and dedication. It’s a role that can be deeply rewarding, providing an opportunity to make a meaningful difference in a loved one’s life. However, it also comes with its share of demands, particularly for those who balance caregiving with full-time jobs and raising children.

In the U.S., nearly 17% of adults provide unpaid care to elderly relatives, with more than 75% of these caregivers being women.¹ Many caregivers juggle this responsibility alongside full-time jobs and raising children, assisting with meal preparation, household chores, transportation to medical appointments, and personal care activities.

While the emotional and personal rewards of providing care to an elderly relative are substantial, caregivers may be eligible for several tax breaks. Here’s a rundown of four of them:

1. Medical expenses. If the individual qualifies as your “medical dependent” and you itemize deductions on your tax return, you can include any medical expenses incurred for the person, along with your own, when determining your medical deduction. The criteria for a “medical dependent” are less stringent than those for a “dependent,” which is discussed below. Generally, an individual qualifies as a medical dependent if you provide over 50% of their support, including medical costs.

However, keep in mind that medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI).

Qualified long-term care services for a chronically ill individual and eligible long-term care insurance premiums are included in the definition of deductible medical expenses. There’s an annual cap on the amount of premiums that can be deducted, based on age. In 2024, this cap ranges from $470 for an individual age 40 or less to $5,880 for an individual over 70.

2. Filing status. If you aren’t married, you may qualify for “head-of-household” status by caring for an individual. You can claim this status if:

• The person you’re caring for lives in your household
• You cover more than half the household costs
• The person qualifies as your “dependent”
• The person is a relative

If the person you’re caring for is your parent, they do not need to live with you, so long as you provide more than half of their household costs and they qualify as your dependent. A head of household has a higher standard deduction and lower tax rates than a single filer.

There are specific requirements for determining whether your loved one is a “dependent.” While dependency exemptions are suspended from 2018 through 2025, the dependency tests still apply when determining eligibility for various tax benefits, such as head-of-household filing status.

To qualify as your “dependent,” the following must be true for the tax year in question:

• You must provide more than 50% of the individual’s support costs
• The individual must either live with you or be related to you
• The individual must not have a gross income over an inflation-adjusted exemption amount
• The individual cannot file a joint return for the year
• The individual must be a U.S. citizen or a resident of the U.S., Canada, or Mexico

3. Dependent care credit. You may qualify for the dependent care credit if the individual you are caring for qualifies as your dependent, lives with you, and cannot physically or mentally take care of themselves. This credit applies to costs you incur for their care to enable you and your spouse to work.

4. Nonchild dependent credit. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) established a $500 federal income tax credit for dependents who don’t qualify for the Child Tax Credit. A dependent parent can make you eligible for this $500 credit. However, your parent must pass the aforementioned gross income test to be classified as your dependent for this credit. You must also pay over half of your parent’s support.

The credit is phased out for taxpayers with adjusted gross income (AGI) above $200,000 ($400,000 for a married couple that files jointly). The credit is reduced by $50 for every $1,000 that your AGI exceeds the applicable threshold.

Mercer Advisors has many clients who provide care for elderly family members. It’s our role to help relieve their financial worries and burdens, as well as direct them to resources we know are useful from our nearly 40 years of experience advising clients. If you would like more information, contact your wealth advisor. Not a client? Let’s talk.

¹ Samuels, Claire. “2023 U.S. Unpaid Caregiver Statistics: Demographic Data.” A Place for Mom, 15 June 2023.