The following is not tax advice. It is provided for informational purposes only.
Caregiver and Beneficiary Financial Support
Key Takeaways
- Caregivers who financially support a loved one with medical expenses could qualify for savings on several fronts.
- Multiple tax credits and deductions are among the possibilities when it comes to helping caregivers save money.
- Caregivers also could benefit from making sure the Medicare plans utilized by their loved ones are the right fit for their circumstances.
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If you find yourself in the caregiver role, you want to know how you can save some money. Here’s a look at some financial assistance options that could benefit you.
Tax Savings
Can You Get a Tax Credit for “Other Dependents?”
In 2017, the Internal Revenue Service (IRS) expanded its Child Tax Credit to include a tax credit of up to $500 for “other dependents,” a group that can consist of people who are tended to by a caregiver. If you paid more than half of the expenses for someone living with you who made less than $4,400 in gross income (in the 2022 tax year), even assisting non-relatives can qualify you for this credit.
Child and Dependent Care Credit
Despite the name, the person receiving care doesn’t have to be a child or a dependent. That’s not the only reason this credit can be confusing, but it can benefit a caregiver up to $4,000 for aiding a qualified individual.
Generally speaking, the credit is for caregivers who work or seek work and must pay for additional care for someone living with them at least half the year who is physically or mentally incapable of self-care.
Medical Expenses Deduction
If you paid medical expenses for someone in your care, you might be able to claim a deduction of up to $4,000. The IRS provides an example and a link with more details.
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Medicare Savings
Are There Medicare Tax Breaks and Assistance Programs?
While tax breaks can help a caregiver save money at the end of the year, you might be able to help all involved save money all year by taking advantage of Medicare-related savings opportunities.
That begins with seeing if a Medicare beneficiary under your care qualifies for Medicaid. A person can be eligible for both Medicare and Medicaid, a combination that could cut expenses for those who are dual eligible.
A person’s home state determines eligibility for Medicaid. To get a general idea of whether the person in your care may qualify, Healthcare.gov offers a handy tool.
Even if you have too much income to qualify for Medicaid some states let you “spend down” to qualify. This process allows you to subtract your medical expenses from your income so that you can qualify for Medicaid.
If they qualify for Medicare, they may automatically be eligible for the Part D Low-Income Subsidy (LIS), also known as Extra Help. This program, also administered on the state level, can reduce the out-of-pocket burden of drug costs, coverage and premiums.
If your loved one doesn’t qualify for Medicaid, they may still be eligible for a Medicare Savings Program to help control costs.
Medicare Advantage
Even if your loved one doesn’t qualify for additional financial assistance, caregivers can potentially save money with the most cost-efficient Medicare product.
For Medicare beneficiaries, Medicare Advantage offers an alternative that bundles Original Medicare, Part D drug coverage, and supplemental insurance under an umbrella that also includes options for dental, vision and hearing coverage. A GoHealth licensed insurance agent can help caregivers determine if Medicare Advantage is the right fit for their loved ones.
Saving With Your Savings
Health Savings Accounts
After a caregiver maximizes savings by taking advantage of any tax breaks or Medicare assistance programs, they’re still likely to have to pay some money. How a caregiver pays can help the bottom line.
If you have funds in a Health Savings Account (HSA), you might be able to use that tax-free money to pay your loved one’s medical bills. People on high-deductible health plans can contribute money tax-free to pay their medical bills, but in some instances, they also can use HSA funds to pay a loved one’s medical bills. If the IRS considers the person to be a qualified relative dependent, using your HSA funds may be an option.
What’s the difference between a tax credit and a tax deduction?
While both are beneficial to a caregiver, a tax credit is more useful because it reduces your tax liability. A deduction, on the other hand, reduces your taxable income.
For example, imagine your income is $50,000 and you owe $500 on your federal tax return. While a $500 tax credit would mean you now owe zero, a $500 tax deduction would recalculate what you owe by basing your tax payment on an income of $49,500. In that case, you would owe a little less than $500, thanks to the deduction.
For example, imagine your income is $50,000 and you owe $500 on your federal tax return. While a $500 tax credit would mean you now owe zero, a $500 tax deduction would recalculate what you owe by basing your tax payment on an income of $49,500. In that case, you would owe a little less than $500, thanks to the deduction.
Can a caregiver claim both a Child and Dependent Care credit and a medical expenses deduction for hiring in-home care of a loved one?
If it’s a qualifying situation and the Child and Dependent Care credit has been exhausted, claim the remaining medical expenses. You obviously can’t apply the same dollars spent to both tax breaks. It’s best to claim the Child and Dependent Care Credit first because it’s generally easier to qualify for and because a tax credit is more valuable than a tax deduction. As with anything tax-related, be sure to consult a qualified tax professional.
How do Medicare and Medicaid work together?
If your loved one is dual eligible, Medicare will pay first. Once Medicare has paid everything that it does toward expenses, Medicaid will kick in and pay what it covers from the remainder. This payer process typically takes care of itself and doesn’t require any special actions from the caregiver.
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Sources
- Frequently Asked Questions. IRS.gov.
- Medicare Savings Programs. Medicare.gov.
This website is operated by GoHealth, LLC., a licensed health insurance company. The website and its contents are for informational and educational purposes; helping people understand Medicare in a simple way. The purpose of this website is the solicitation of insurance. Contact will be made by a licensed insurance agent/producer or insurance company. Medicare Supplement insurance plans are not connected with or endorsed by the U.S. government or the federal Medicare program. Our mission is to help every American get better health insurance and save money.
Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.