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Supporting a Parent
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Tax help in caring for your aging parents Millions of adult children find themselves looking after aging parents. Tax laws offer some help, as long as you and your parents meet the criteria. The key to Internal Revenue assistance in caring for an elderly relative is whether you can claim the your parent as a dependent. Any dependent must meet certain tests. While there is a little flexibility when dealing with children, fewer exceptions are granted when the potential dependent is older. If you and your parent meet IRS requirements, you'll be able to claim an added personal exemption on your income tax return. For 2009 returns, such exemption allows you to reduce your taxable income by. $3,500. But to claim this tax break, you must pass the following two tests:
Your parent doesn't have to live with you to qualify as a dependent, as long as they meet the income test and you provide more than half of the financial support. If your parent lives with you, you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to their support. Making the most of the Dependency Exemption The dependent's own funds are not considered support unless they are actually used for support. For example, let's suppose that, over the course of the year, your mother receives $4,800 in Social Security and $200 in interest. Of this $5,000, she spends $4,000 for her support and saves the remaining $1,000. If you spend more than $4,000 for her support, you can claim her as a dependent even though she contributed more money. Unless you specify otherwise, the IRS routinely allocates your contribution of support equally between both parents. If you provide less than half of the total support for both parents, you might consider supporting only one of them, the one with less income. By making your check payable only to that parent, you may become eligible to claim at least one parent as a dependent. Finally, to protect your dependency exemption, add up the numbers well before the end of the year. That way, if you discover you're short of providing more than half of your parent's support, you may be able to claim the exemption by spending an additional sum before year end.
You can find a support worksheet in: IRS Publication 501: Exemptions, Standard Deduction, and Filing Information (pdf).
Qualifying for the Dependent Care Credit A dependent care tax credit is available for individuals who, in order to be able to work, pay someone to care for a mentally or physically disabled parent. The credit is a percentage, based on your AGI, of the amount of dependent care expenses you pay. Expenses for care of a disabled dependent also may qualify for a medical deduction. You must choose to take either the itemized deduction or the dependent care credit, but not both. What about Deducting Medical Expenses ? Even if you can't claim your mom as a dependent, you may still get a tax break for helping pay their medical costs. The IRS lets taxpayers deduct money spent on a parent's health care, even if the parent doesn't qualify as a dependent. To claim this deduction,you still must provide more than half your parent's support, but your parent doesn't have to meet the income test. The deduction is limited to medical expenses that exceed 7.5% of your adjusted gross income. You can include your own unreimbursed medical expenses in calculating the total. Most taxpayers don't have enough medical expenses to clear the 7.5% threshold. But if you're paying thousands of dollars a month for a parent's nursing home care, you might not have trouble overcoming that hurdle (see box at the left). Children who pay for a parent's care in an assisted-living facility could also qualify for a deduction. Most administrators of these facilities will break out how much of the monthly payment goes toward medical services, as opposed to food and other amenities. The portion that goes toward medical care is deductible, once your total medical expenses exceed 7.5% of your adjusted gross income. Paying for Long-Term Care It is important to understand the different types of insurance that are available to older people. Many people believe that Medicare will cover long-term care needs. Medicare will NOT cover long-term care needs. MEDICARE - Medicare is a Federal health insurance program which helps defray many of the medical expenses of most Americans over the age of 65. Medicare has two parts: (Part A) Hospital Insurance helps pay the cost of inpatient hospital care. The number of days in the hospital paid for by Medicare is governed by a system based upon patient diagnosis and medical necessity for hospital care. Once it is no longer medically necessary for the person to remain in the hospital, the physician will begin the discharge process. If the person or the family disagrees with this decision, they may appeal to the state's Peer Review Organization. Medicare does not pay for custodial care or nursing home care. It will, however,cover up to 60 days in a nursing home as part of convalescence after hospitalization. (Part B) Medical Insurance pays for many medically necessary doctors' services, outpatient services, and some other medical services. Enrollees pay a monthly premium. MEDICAID Medicaid is a joint federal-state health care program for people with a low income. The program is administered by each state and the type of services covered differs. There are strict income requirements so it is necessary for the person to "spend down" all income and assets to poverty levels before becoming eligible. Medicaid is the major payer of nursing home care. The Medicaid requirement to "spend down" all income and assets created a great hardship for the spouse of a person needing nursing home care. Changes in the Medicaid rules now allow the spouse to keep a monthly income and some assets, including the primary residence. The amounts allowed change, so you must check for current levels. OTHER INSURANCE Why buy other insurance? The purchase of additional insurance gives the policy holder access to a greater choice of facilities without dipping into additional financial resources.
Information about other long-term insurance policies are available from Private Geriatric Care Managers who are are professional social workers and nurses who assist the elderly and their families by assessing need, coordinating services, and monitoring care for a fee. They are particularly helpful when long-distance care giving is necessary. Fees vary and are sometimes covered by Medicare or private insurance. If the older person has been hospitalized, hospital discharge planners can also provide information and referrals for after-care. Legal Issues If an elderly relative becomes mentally incapacitated, it is necessary that someone step in to take care of affairs. Advance planning on the part of both the elderly person and those who care about him/her will facilitate this process. You should consult an attorney before taking any of the following steps. The Document Locator (scroll to bottom of page) is a useful tool for the elderly person and his/her relatives to make contingency plans for future care. Other factors to consider include setting up joint bank or property accounts and signing a durable power of attorney. Joint property or bank accounts are the simplest way to ensure that someone will be able to handle the elderly person's affairs if s/he becomes incompetent. There are, however, serious financial and tax consequences to such an arrangement. For example, when applying for Medicaid assistance, the assets of both owners are taken into account to determine eligibility. No one should enter into such an arrangement without checking all the legal implications. A durable power of attorney is important because an ordinary power of attorney is not valid if the principal becomes incapacitated. This can create serious problems for the person handling the affairs and arranging care. A durable power of attorney is designed to survive disability or incompetence and is an important alternative to guardianship, conservatorship, or trusteeship. Laws vary from state to state so it is important that a durable power of attorney be drawn up by an attorney licensed to practice in the state in which the client resides. Guardianship or conservatorship is the legal mechanism by which a court declares a person incompetent and appoints a guardian. The court transfers the responsibility for managing financial affairs, living arrangements, and medical decisions to the guardian. This procedure can take some time, usually when time is of the essence. It is recommended that a lawyer draw up any durable power of attorney and/or health care power of attorney so that the document meets your special needs and will be acceptable in your state. This is especially important in any state which does not have a statutory form. The Society for the Right to Die provides free information on your state's current laws on both living wills and powers of attorney for health care. The National Academy of Elder Law Attorneys can provide information on how to chose an attorney specializing in elder law. Other referral sources include the local Office on Aging or the local Alzheimer's Association. See Eldercare Resources below for the addresses and telephone numbers of these organizations. Useful Eldercare Resources: Adult Day Services Network of Contra Costa. Nonprofit
organization in Contra Costa who can assist you in finding a day program or other community service. They have 15 locations in Contra Costa. You can find them at Adult Day Services Network of Contra Costa. AARP Webplace - This advertisement-free site provides information and encourages elder advocacy. http://www.aarp.com Aging Parents: The Family Survival Guide Aging Parents and Elder Care - Articles, comprehensive checklists, and links to key resources. The site is designed to make it easier for family caregivers to quickly find the information they need. http://www.aging-parents-and-elder-care.com/ ElderWeb: An Online Eldercare Sourcebook Academy of Elder Law Attorneys Alzheimer's Association, Inc. American Association of Homes for the Aging American Association of Retired Persons National Association of Private Geriatric Care Managers 1604 North Country Club Road National Council on the Aging, Inc. National Institute on Aging National Guardianship Association Long-Term Care Link
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