Whether you’re caring for aging parents, a disabled family member, or an adult child, you know how challenging, yet rewarding, the work can be. The fact is, supporting an adult dependent can put a significant strain on your finances, especially if you’re relying on one income to fund multiple lifestyles. This is a situation that many families find themselves in, as 54% of Americans in their 40s financially support a parent and over half of all parents in the US are still supporting their children past 18. Furthermore, an estimated 48 million people serve as caregivers for adults with special needs.
Whether you chose to take on this responsibility or it was thrust upon you unexpectedly, knowing what resources you have access to and getting a plan in place can help lessen the financial burden your caregiving imposes. So, how can you care for a dependent without sacrificing your financial security? Let’s take a look at a few of the options you have.
Financial Assistance for Caregivers
Despite the profound sense of purpose and fulfillment it affords, caregiving can be stressful, isolating, and incredibly time-consuming. Caregivers can find themselves responsible for any number of tasks, such as managing medications, providing transportation, preparing meals, and sometimes performing sophisticated medical tasks—often without receiving any kind of compensation and at the expense of living their own lives.
Medicare and Medicaid
Medicare and Medicaid are government insurance programs that can help cover certain caregiving expenses and services. Medicare has an age minimum that requires the insured to be 65 or older, but Medicaid is available to people of all ages as long as the care recipient is considered low-income. The requirements for coverage can be found here.
Additionally, 15 states currently allow family members to get paid an allowance in exchange for their caregiving services by way of the Cash and Counseling program. Programs like this can help supplement your income, which could be particularly helpful if your caregiving responsibilities have impacted your personal career and earnings.
While Medicare and Medicaid aren’t likely to cover all of your expenses, they can offset some of the expenses for you and your dependent.
Home and Community-Based Services Program
The home and community-based services program offers services and financial support to qualifying elderly or disabled individuals. Eligibility requirements vary by state, but the services included cover a wide range of household tasks, such as chores, meal prep, transportation, and even home modifications. For instance, if you have a medical need for your kitchen counters to be lowered or for railings to be installed in your bathroom, HCBS may be willing to bear the associated costs.
Similarly, the veteran-directed home and community-based services program provides much of the same support for aging or disabled veterans. If your dependent family member is a veteran, they can opt to hire you as their caregiver under this program.
Long-Term Care Insurance
For elderly dependents who aren’t eligible for Medicare, Medicaid, or home and community-based services, a long-term insurance plan might be able to offer some financial assistance. These policies are designed to help cover costs associated with chronic medical conditions and disorders, such as Alzheimer’s, that require constant or regular care. Benefits tend to be paid out on a daily, weekly, or monthly cadence based upon the needs of the insured.
Note that if your parent or family member bought one of these policies many years back, their best option might be holding onto that plan, as the standard of coverage has declined in recent years.
Tax Benefits for Caregivers
In addition to the above financial aid options, caregivers may qualify to receive certain tax benefits. Here are some of the tax breaks you can potentially take advantage of in the interest of keeping more cash in your pocket.
Claim Your Parent
If the adult you’re caring is a parent, you may be able to claim them as a dependent on your tax return, entitling you to tax deductions and maybe even a dependent care credit. In order to do so, you must check off two tests (Gross Income Test and Support Test) – you must provide over 50% of their financial support, which can include costs associated with food, housing, transportation, etc., and the adult dependent cannot have more than $4,300 of gross income (keep in mind that Social Security is not included if that is their only source of income). The eligibility requirements are outlined in the IRS’s Publication 501.
Claim Eligible Expenses
Caregivers can also claim deductible expenses for adult dependents on their annual tax returns. This includes adult children under the age of 19, or 24 if they’re still a student. With that said, you must be the primary earner and the only one claiming them as a dependent. While you won’t be able to deduct every expense connected to your loved one’s care, you can account for some of the more significant ones, such as the transportation cost of getting your dependent to and from any medical appointments.
Set Up a Multiple Support Declaration
Even if you’re not responsible for paying all of your dependent’s expenses on your own, you may still be eligible to receive tax breaks. For instance, families that share caregiving responsibilities between different members can set up what’s called a multiple support declaration. This agreement can help you and other family caregivers claim tax exemptions for your loved one by taking turns claiming them as dependent.
Providing care for a dependent is a difficult job, but it can be deeply fulfilling, too. While dependents can often put stress on their family members, finances shouldn’t have to be one of your primary concerns. If you’re wondering how you can better support yourself and an adult dependent, reach out to Peninsula Wealth today. We can work with you to create a strategic plan to help you plan the care of your loved ones.