[Last updated June 13, 2024]

Caring for an older adult, such as a parent or spouse, can be rewarding — but it can also require significant time and resources. To alleviate some of the financial impacts, there are multiple tax-deductible expenses caregivers should know about. When taking a look at your caregiver expenses, consider the rules we cover here for tax season.

A senior man sits at a table with a younger caregiver as she looks at a receipt.

Tax-deductible caregiver expenses

When caregivers incur expenses for providing care to a loved one, they may be able to deduct some of those expenses during tax time. Certain expenses are not eligible, so it’s important to know whether your expenses qualify. First, we’ll go over some of the common qualifying expenses. Next, we’ll explain some of the requirements for those expenses to be tax deductible to the caregiver.

Caregivers of seniors can deduct several itemized expenses related to caregiving. Eligible deductible expenses include:

  • Assisted living, nursing home, and home health aide costs, when incurred for medical reasons.
  • Medical and therapeutic services, including physical and occupational therapy. This includes any unreimbursed copayments and deductibles.
  • Prescribed medication and medical equipment, including hearing aids and walkers.
  • Transportation for medical appointments or services.

Keep in mind that not all expenses are tax deductible. Any costs not deemed necessary to the care of the older adult are ineligible and can include:

  • Cosmetic surgeries, unless necessary following a disfiguring disease, an accident, or trauma.
  • Nonprescription medication — except insulin — and illegal or non-FDA-approved medications.
  • Other non-care-related expenses, including life insurance policies, funeral costs, and travel recommended by a doctor for respite.

Rules for caregiver expenses to be tax deductible

The IRS allows caregivers to deduct medical expenses they cover for their older adult dependents under the following circumstances:

  • The caregiver itemizes their deductions.
  • The older adult was the caregiver’s dependent at the time the expense was paid. The IRS considers a taxpayer’s parent a dependent if they are a qualifying relative.
  • The amount of expenses they can deduct is more than 7.5% of their adjusted gross income (AGI). When a taxpayer tallies qualified medical expenses paid in a tax year, the amount over 7.5% of their AGI can be deducted. 

Caregivers who want to deduct expenses should ensure they pay for care from an eligible account. Medical expenses paid for from flexible spending accounts (FSAs) and health savings accounts (HSAs) are not deductible because you have not paid taxes on the money in those accounts. FSAs and HSAs pull from pretax earnings and deposit the funds into a medical savings plan. These funds can be used for out-of-pocket health care costs for individuals and their dependents. It’s important to know that if a caregiver uses an FSA or HSA to pay for a given expense, they cannot also deduct that expense from their taxes.

Tax credits for caregivers of older adults

Caregivers may also qualify for tax credits if they meet the requirements. These tax credits can help ease the financial burden of providing care for a loved one. Here are the types of tax credits and how a taxpayer qualifies for them.

Types of tax credits

Two major federal tax credits are available to taxpaying caregivers of older adults: the child and dependent care credit and the credit for other dependents. 

The child and dependent care credit is a refundable tax credit based on caregiving costs. These costs may include home care, adult day care programs, and other expenses allowing the taxpayer to work or actively seek work. Family caregivers can claim up to $3,000 in caregiving costs for a qualifying dependent.

The credit for other dependents is a nonrefundable tax credit of up to $500 for qualifying dependents, including older parents or relatives. This credit begins to phase out for single taxpayers earning over $200,000 or married couples filing jointly earning over $400,000.

Rules and regulations to earn a tax credit

To qualify for the child and dependent care credit, the following requirements must be met:

  • The older adult is not capable of self-care.
  • The older adult has lived with the caregiver for at least six months during the tax year.
  • The older adult is the taxpayer’s dependent or would have been if not for their maximum gross income amount and/or a joint filing with a spouse.
  • The taxpayer pays an outside care provider that enables the taxpayer to work or actively seek work.
  • If married, the taxpayer’s spouse is also employed, a student, or disabled — in other words, they cannot provide care while the taxpayer is working.

For those seeking the credit for other dependents, the following requirements must be met:

  • The older adult lives with the taxpayer, who pays over 50% of the individual’s living expenses.
  • The older adult’s gross income does not exceed the cutoff amount in a given tax year.
  • The older adult is a U.S. citizen, national, or legal resident with a valid identification number.
  • If the older adult is a parent or relative, they have lived with the taxpayer for over six months. If the older adult is not a relative, they have lived with the taxpayer for the entire tax year.
  • If the older adult is married, they did not file a joint return with their spouse.
  • The taxpayer looking to claim a dependent is not a dependent of anyone else.

Caregivers who are unsure whether they can claim an older adult as a dependent should speak with a trusted tax professional. They also can use the IRS interactive tool to determine eligibility.

Family caregivers and employment taxes

In addition to tax deductions and credits, special tax rules for family caregivers apply. Some caregivers are considered employees of the individual for whom they provide services. If the caregiving employee is a family member, the employer may not need to pay employment taxes; however, the employer must still report any caregiver compensation.

Some family member caregivers are classified as independent contractors or self-employed rather than employees of the older adult. Generally, family caregivers will not owe self-employment tax as long as they are not providing services as part of an adult day care or other caregiving business.

Tax treatment of Medicaid waiver payments 

In some cases, caregivers may be paid to take care of someone who is a Medicaid beneficiary, such as when the person who needs care has Medicaid coverage and has applied for a Medicaid waiver. The purpose of these waivers is to allow Medicaid beneficiaries to receive long-term care services at home rather than having to live in a long-term care facility, like a nursing home. Caregivers of people with Medicaid waivers can get paid. If a caregiver receives payment from the government under a Medicaid waiver program, the payments may be excluded from income and thus are received tax-free. 

For the payments to be considered nontaxable income, there are several requirements that must be met, such as the type of care given and whether the caregiver lives with the person they’re caring for, among other details. Because the rules are detailed, it’s always a good idea to talk with a tax professional and a representative from your state’s Medicaid office to learn how the details apply to your specific situation.

As you can see, there are several scenarios in which a caregiver could receive relief come tax season. Caregivers should always consult their trusted tax professional for guidance on complying with tax laws and ensuring they get the most out of their tax refunds when it comes to caregiving expenses.