Taxes When You Become a Caregiver for a Disabled Family Member

Taking on the caregiving role for a disabled family member is a significant personal commitment that also has meaningful tax implications. Depending on the relationship and the circumstances, you may be entitled to several tax benefits that can help offset the financial cost of providing care.

The first question is whether the person you're caring for qualifies as your dependent. For a disabled child under 19 (or under 24 if a full-time student), the qualifying child rules apply. For a disabled adult — a spouse with a disability is treated separately — a parent, sibling, or other relative may qualify as a "qualifying relative" dependent if they have gross income below $5,050 (2024), you provide more than half their support, and they're related to you. A non-relative can also qualify as a dependent if they lived with you the entire year and you provided more than half their support. Claiming someone as a dependent doesn't provide a personal exemption under current law, but it does unlock access to other significant tax benefits.

If you pay for a professional caregiver or daycare center to care for a qualifying disabled dependent who lives with you, so that you (and your spouse, if married) can work, you may be eligible for the Dependent Care Credit or a Dependent Care FSA through your employer. The dependent doesn't need to be a child — a disabled adult dependent who lives with you qualifies too. The credit can reimburse up to 35% of up to $3,000 (one qualifying person) or $6,000 (two or more) in eligible care expenses.

Medical expenses you pay for a disabled family member who is your dependent can be included with your own medical expenses for purposes of the medical expense deduction. This deduction applies to the extent that qualifying medical expenses exceed 7.5% of your AGI. The list of qualifying medical expenses is broad: doctor visits, prescriptions, hospital stays, therapy, hearing aids, wheelchair costs, home modifications required for a medical condition (such as wheelchair ramps or grab bars), in-home nursing care, and part of the cost of a nursing home or assisted living facility if the primary reason for the placement is medical. Years with very high medical costs — surgery, extended hospitalization, significant home modifications — are often the years where this deduction makes a real difference.

If you receive any compensation for providing care — such as a direct payment from Medicaid, a veteran's program, or a family caregiver support program — that income is generally taxable, and if you're considered a self-employed caregiver, you'll owe self-employment tax on it as well. If you give up your own employment to become a full-time caregiver, consider the impact on your own future Social Security benefits (which are based on your earnings history) and what retirement savings alternatives you can pursue — such as an IRA funded by your spouse's earned income if you file jointly. Taking care of a disabled loved one is one of the most important things a person can do, and making sure you're claiming every available tax benefit is one small way to ease the financial burden.