A good, reputable in-home caregiver agency provides approved, reimbursable services
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Persons responsible for caring for their elderly, dependent parents, or a disabled sibling, may qualify for the “dependent care” tax deduction, much like working parents benefit from a tax deduction for day care expenses incurred for their children.
Section 125 of the Internal Revenue Code stipulates that day care payments for an elderly person may qualify as dependent care expenses if the person receiving the care is your spouse or a dependent who lives with you, and is physically or mentally incapable of caring for himself or herself. In such cases, the costs for home care services provided by an in-home care agency for elderly dependent parents can be tax-deductible.
A person who has a dependent parent has two options available to take advantage of this tax deduction:
- By filing Form 2441, Child and Dependent Expenses, along with the annual 1040 form, in order to claim a tax credit on annual income.
- By participating in a Dependent Care Assistance Program plan (DCAP) through the workplace. Established by an employer, a DCAP plan works by either reimbursing employees for dependent care expenses, making payments directly to third parties for dependent care, or paying for a dependent care facility.
In the case of Form 2441, some conditions apply:
- You must be paying at least one-half of your dependent’s expenses in order for that person to qualify as your dependent.
- Their principal place of residence must be with you for more than one-half of the tax year.
Form 2441 is used to compute an income tax credit based on calculations from the amount spent on care in combination with your adjusted gross income. This figure is then included on Form 1040.
DCAP plans offered through the workplace can be either a standalone health care account, or part of an employer offered “cafeteria plan.” In both cases pre-tax dollars are contributed to the account thereby effectively reducing an employee’s take-home pay, thus the amount of taxable income. Through such plans, an employee can contribute annually up to $5000 of his or her gross income, thus pre-tax dollars, or $2500 for married employees filing separately. These accounts can be used to either reimburse dependent care expenses or be accessed directly to pay for out-of-pocket expenses. If you participate in a DCAP plan, you are not allowed to file Form 2441.
Dependent care assistance, defined as dependent care services that an employed person needs to access in order to be able to work, includes (1) expenses for household services incurred to provide care to a qualifying person, and (2) expenses incurred to provide care to a qualifying person outside the employee’s home.
A good, reputable in-home caregiver agency provides these approved, reimbursable services. Not only will you have relief, peace of mind, and more time for yourself with an in-home caregiver, but you will also be saving real income dollars.
The information in the article is not intended to substitute for the medical expertise and advice of your healthcare provider. We encourage you to discuss any decisions about treatment or care with an appropriate healthcare provider.