Dementia can be a very costly disease. Not only do families have to deal with the gradual loss of cognitive abilities in their loved one, they can also be shouldered with a lot of expenses for which they don’t have sufficient insurance or — as is often the case – no insurance at all. Caregivers are one example of these costs. Good secondary caregivers make all the difference in the world for the family member who is the primary caregiver. This primary caregiver has their own life to lead, and that is impossible if there are no other caregivers to back them up.
Some primary caregivers are blessed with family to be their regular backup. But many primary caregivers do not have that luxury. I certainly fall in that category. Jim and I have no family in the city or even the state where we live. So I must rely on paid caregivers. Jim and I are blessed to have a team of five part-time caregivers who all care tremendously for Jim. This allows me to continue to work, grocery shop, run errands, and occasionally get together with friends. These five people make a huge difference in both of our lives.
Obviously, this kind of care can be costly. So the question arises: Are there any tax benefits to help mitigate the expense? Medical itemized deductions are one possibility. However, you must have a prescribed plan of care provided by a medical professional to take advantage of this deduction. And, there are other factors to consider, such as the medical expense deduction threshold. But it is one possibility for you to discuss with your tax professional.
Another tax benefit you can consider is the dependent care tax credit. Normally we think of the dependent care credit as something we take advantage of when we have children in day care programs. But the dependent care credit can also benefit the primary caregiver who works and pays for caregivers in the home or in a facility, such as an adult day care center. To qualify for the dependent care credit you must:
- have earned income,
- pay for the care of a spouse or dependent who is physically or mentally incapable of self-care, so that you can work,
- live with the person and pay for at least half the costs of maintaining the household in which you live,
- file a joint return, if you are married, unless certain exceptions apply.
In general, you can count toward the credit the amounts you pay your relatives, except you cannot count payments to a dependent for whom you can claim a personal exemption. You also cannot count an expense toward the credit if you have counted it as a medical expense in computing your medical expense deduction.
The credit is a percentage ranging from 20 to 35 percent of your work-related expenses. There are definitely limitations and last year I only received a $600 tax credit. But it was nice to get something. This year I have enrolled in my employer’s Flexible Savings Account Program (for dependent care) and that will allow me to reduce my taxable income $5,000. This reduction in income will be better for us than the $600 credit.
So, if you are someone working and paying for professional care for a family member with dementia, I encourage you to contact your tax professional to discuss the dependent care credit. You just may just owe the government less than you think!