As your health or the health of someone you care about begins to “slip” you may consider bringing in some additional assistance to help improve functionality and overall wellbeing. Oftentimes, the need is minimal; but as the months and years pass, full-time assistance may become necessary – and the expense could be significant. Fortunately, you may be able to catch a bit of a break on your tax bill thanks to the personal medical expense deduction.
Unfortunately, not all home care assistance is eligible to receive the medical expense deduction. It’s granted on a case-by-case basis. Normally, your physician will begin considering whether assistance is needed when a family member begins to express concerns about the well being of the patient. From there, approval of qualified medical expenses are dependent on whether the need falls under one of the following categories and whether this need has existed over the last 12 months.
- The patient is unable to perform normal tasks without “substantial assistance” from another person. These would include at least two of the following activities: eating, toileting, transferring, bathing, dressing, etc.
- The patient requires “substantial supervision” to protect them from threats to their health and safety due to severe cognitive impairment even if the patient is physically able to live on their own.
Substantial assistance is defined as either hands-on assistance, or the assistance of another person, or standby assistance, which would be fulfilled by the presence of another person who is always within arm’s length in an effort to prevent injury from occurring. Substantial supervision is continual supervision by another person and is necessary to protect the severely cognitively impaired patients from threats to their own health or safety.
If in-home healthcare is in the cards for yourself or a loved one, take note of the following five tips to help streamline some of your decisions while securing the greatest tax benefit.
- Secure the proof: Before taking the medical expense deduction, it is best to have a signed letter from a physician that states the need for outside assistance. Once this letter has been obtained and filed in your personal records, you can then begin searching for a service provider.
- Business vs. Individual: You are free to hire either a business or an individual to provide the services you or your loved one require. Just be aware that hiring an individual would put you at the mercy of complicated payroll tax rules. This is because the government regularly views the service provider as your employee. Be sure to talk about your options with your financial advisor. You may decide that it just makes more sense to hire a business to avoid further complications.
- Licensure isn’t necessary: Your ability to take the deduction on your taxes isn’t tied to whether your care provider is licensed. That being said, working with a licensed health care provider lends more credibility to your medical need, especially if you or a loved one requires assistance for the daily activities necessary for living a full, happy life. If the service you require falls under the “substantial supervision” and medical care isn’t needed, then a non-licensed provider is acceptable.
- Segregation of duties: When you bring a care provider into your home, you may discover that some of their time is spent helping out with personal and household services. While their assistance is nice to have, it’s not necessary – therefore you are responsible for keeping track of how much time is being spent on medical work vs. personal chores and initiatives. You are only allowed to deduct the medical portion of your expenses.
- Equipment is Covered: Some situations require you to make improvements to your home or to install special equipment to maintain the property’s accessibility. Certain improvements, such as ramps, widening of doorways, the addition of handrails, chair lifts, modifying stairways, also qualify as medical expenses. Furthermore, if the value of your property increases, the deduction is reduced by the increase in value of the property.
So if you find yourself or a loved one in need of assistance, discuss your situation with your tax advisor to determine when you are incurring eligible medical expenses. Also keep your tax advisor updated annually as conditions change and more tax deductions are warranted.
By Lisa Beamer, CPA (New Philadelphia office)