Grab Increased Medical Deduction For Nursing Care
Updated: Jan 4
Here’s a scenario that I see more and more often. Taking in an elderly parent as a dependent (as long as you can demonstrate that you are covering more than half their living costs). Usually after one parent has passed away.
Something to remember, any medical expenses paid on behalf of a dependent qualify as a deduction on your personal income tax return…subject to the 7.5% “haircut” of course, AND only if you have enough to itemize your deductions.
Suppose that dependent family member is ill, injured, or just in a time of life that they need daily assistance. There is such a thing as “home healthcare” and that is considered a qualified medical expense.
Here is an idea. Suppose you have a grown child who could take care of that elderly parent as their “job”? You pay them wages (which is another complex part of tax law…call your CPA for assistance with how to keep the paperwork straight on reporting domestic wages). All the related wage costs you pay them to take care of Grandma or Grandpa or both, are qualified medical expenses.
There is a small catch. (There’s always a catch when dealing with the IRS isn’t there?) If that family member, whom you are paying wages, performs tasks other than healthcare related (such as cooking, cleaning, etc.) you must segregate the non-healthcare portion out. That non-healthcare portion is not a qualified medical expense.
So, here is an example: You hire an individual to take care of your mother and perform other household duties. They earn $2,000 a month and spend about 75% of the time caring for Mom. Thus, 75% of their wages for the year, or $18,000 (75% of $24,000), count as a medical expense.
Now let’s say your Adjusted Gross Income (AGI) is $100,000. That means that the $18,000 deduction is reduced further by the 7.5% of AGI ($100,000 x .075) “haircut”… now the allowable medical deduction is reduced to $10,500 ($18,000-$7,500). If you have other medical expenses, plus the tax related itemized deductions, mortgage interest, and charitable contributions that put you over the standard deduction ($25,900 for married folks, $19,400 for head of households), then you just benefited from the costs you paid to take care of your elderly parent. Simple right? (I get it, NOT simple. But that is what us CPAs do, we help make it simple for you.)
BONUS: You can also deduct a part of cost of providing that helper with meals, AND, the payroll taxes and payroll processing fee are also considered part of the qualified medical costs. In fact, I can tell you the easiest way to stay out of trouble with payroll matters is to hire a reputable payroll company to provide “employee leasing” services to you. (They actually “hire” that helper, take care of all reporting requirements, etc. and you “lease” that individual from them.)
Have you heard? Jeremiah 39:12 says, “Take him and take care of him. Do him no harm; but do to him even as he tells you.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.