Question: I wish to provide my parents with caregiving services. May I charge for the long term care services that I provide, and will these services be tax deductible for my parents?
Answer: Like so many things in the tax code, the answer is: It depends.
Qualified long term care services normally qualify as medical expenses that are eligible to be deducted as itemized deductions on a taxpayer’s individual income tax return to the extent they exceed insurance reimbursements or any other reimbursement. This is trickier than it first appears because VA disability pension, which some chronically ill taxpayers receive, is a payment of unreimbursed medical expenses and only personal care expenses in excess of the VA disability pension received are, therefore, deductible.
The Internal Revenue Code defines “qualified long-term care services” to include personal care services, which are required by a chronically ill individual AND are provided pursuant to a plan of care prescribed by a licensed health care practitioner. A chronically ill individual is one that has been certified by a licensed health care practitioner to either be unable to perform at least two of the activities of daily living OR requires substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Finally, the Internal Revenue Code prescribes one more requirement for care providers that are related to the chronically ill taxpayer. For payments made to a spouse or relative of the chronically ill individual, the payments are only deductible if the caregiver is a licensed professional (i.e. doctor, registered professional nurse, or licensed social worker). Relatives that must meet this additional requirement are:
- Descendants (including Sons and daughters-in-law)
- Sibling (including step-siblings and Brothers and sisters-in-law)
- Ancestors (including Fathers and mothers-in-law)
- Nieces and nephews
- Aunts and uncles
Although the list is quite comprehensive, notice that some relatives are omitted, such as:
- Grandsons-in-law and Granddaughters-in-law
- Children of nieces and nephews
- Aunts-in-law and Uncles-in-law
Stephen J. Bailey, Esq.