Senior care can be expensive and time-consuming, especially if you’re the primary caregiver. Luckily, the IRS recognizes this and gives taxpayers ways to offset the cost of senior care through tax deductions and credits. 

These tax advantages can be powerful and potentially save you a lot of money if you know how to use them. Unfortunately, understanding the tax code is the hard part. To make understanding the tax code a little less painful, we’ve summarized how you can deduct senior care costs below.

Two people sit at a desk. One has a phone and calculator in front of them, and the other fills out a tax form.

What kinds of senior care expenses are tax deductible?

The Child and Dependent Care Expense Credit and the Medical and Dental Expense Deduction are two main ways to offset senior care costs during tax time. A tax credit is a dollar-for-dollar reduction of your tax burden, whereas a deduction reduces your taxable income.

Child and Dependent Care Expense Credit

The Child and Dependent Care Expense Credit allows you to claim a credit for 50% of expenses paid to have someone care for a child or other dependent while you (and your spouse, if filing jointly) are at work. In addition to child care, you can claim this credit when you pay for someone to look after a qualifying person

The IRS defines a “qualifying person” as: “a person who isn’t mentally or physically able to care for himself or herself, lives with you for more than half the year, and either: Is your dependent OR Would have been your dependent except that (i) he or she receives more than a certain gross income amount ($4,300 in 2021), (ii) he or she files a joint return, or (iii) you (or your spouse in the case of a joint return) can be claimed as a dependent on someone else’s return.”

This definition means you can utilize the Child and Dependent Care Expense Credit if you pay for someone to care for your older relative while at work.

Medical and Dental Expense Deduction

The Medical and Dental Expense Deduction allows you to write off qualifying medical and dental expenses for your dependents. With this deduction, you can write off the amount of money spent on medical and dental expenses that exceed 7.5% of your adjusted gross income.

The IRS defines medical expenses as “expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” This definition means that nursing home care is only deductible if the primary reason for residence is to receive medical care. But plenty of other expenses can be deducted, such as hospital bills, dentures, prescription drugs, and qualified long-term care services.

You can only take this deduction if you itemize your return, which doesn’t make sense for everyone. Many people are better off taking the standard deduction — but the decision of whether to itemize your return is best left to your trusted tax professional who knows your unique situation. 

How many expenses can I deduct?

Unfortunately, you cannot deduct the total value of senior care expenses with the Child and Dependent Care Credit and the Medical and Dental Expense Deduction. In the case of the Child and Dependent Care Credit, you will only get a credit for 50% of the expenses paid, up to $4,000 if you have one qualifying dependent and $8,000 if you have two or more qualifying dependents.

Regarding the Medical and Dental Expense Deduction, you may only deduct the portion of medical and dental expenses that exceed 7.5% of your adjusted gross income. This means if you make $100,000 per year and pay $10,000 worth of medical expenses for an elderly dependent, you will only be able to deduct $2,500 worth of medical expenses.

How can I qualify an older adult as a dependent?

The IRS deems qualifying relatives as dependents, which are defined as

  1. A person who is your:
  • Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild);
  • Brother, sister, half-brother, half-sister, or a son or daughter of any of them;
  • Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle);
  • Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; or,
  • Any other person (other than your spouse) who lived with you all year as a household member if your relationship didn’t violate local law.
  1. Who wasn’t a qualifying child (see Qualifying Child, earlier) of any taxpayer for the previous year; and
  2. For whom you provided over half of the support in the previous year. 

This definition means an older relative can qualify as your dependent if you provide at least half of their monetary support.

Do I need to keep track of deductible expenses?

Yes. If you claim any deductions or tax credits, you should have the paperwork to back them up. These documents don’t have to be physical papers, though. You can store them online as well. Ofteit’st’s easiest to take a picture or scan receipts/other documentation and save it to your computer or upload it to the cloud. 

Regardless of where you store the files, be sure you can back up the credits and deductions you take if the IRS audits you.

Should I hire an accountant to do my taxes?

The more complex your taxes become, the more areas there are for you to make a mistake. That’s why it’s a good idea to have a trusted accountant do your taxes you’re making non-traditional write-offs.

Having an accountant do your taxes becomes even more critical if you have to itemize your taxes. This process is a bit more complex than taking the standard deduction, so it’s best to have a trained professional handle it.

Generally speaking, a good accountant is an excellent investment, as they should be able to save you more money than they cost. They can also make tax time significantly less stressful, as they can properly document and file your taxes.