Financial impact of Dementia During Tax Season
When it comes to Alzheimer’s disease and other dementias, much of the focus goes on how to care for the older adult living with the condition. What may not be as apparent are the significant costs associated with dementia care.
Alzheimer’s disease is the most expensive disease in America, costing more than cancer and heart disease, according to the Alzheimer’s Association. The association estimates the costs of caring for people with Alzheimer’s and other dementias will total $305 billion in 2020. Of the total costs, Medicare and Medicaid may cover 67 percent, which means people with dementia or their caregivers are responsible for the remaining costs.
Alzheimer’s care can devastate the personal budget of the one paying the costs. According to a 2016 Alzheimer’s Association report, among those who pay for dementia expenses or provide care for someone with dementia, 48 percent cut back on their spending. The report also noted that nearly 4 in 10 care contributors said the food they buy does not last, and they don’t “have money to get more,” while 3 in 10 people said they ate less because of care-related costs.
Fortunately, some costs for caring for someone with Alzheimer’s disease and other dementias are tax-deductible. This year, the IRS has moved the tax filing deadline from April 15 to July 15 because of the coronavirus disease 2019 pandemic.
So, it is not too late for caregivers to talk with their tax preparer about deductions for dementia-related care. Those who have already filed their 2019 taxes can prepare for next year’s tax season.
Medical Expenses Are Tax Deductible
Most out-of-pocket costs associated with caring for someone with dementia are medical expenses, and many of those expenses are tax-deductible.
The tax-deductible medical expenses listed in the Internal Revenue Service (IRS) Publication 502 include:
- Home care and home modifications, such as wheelchair ramps or grab bars
- Hospital services
- Payments for medical services rendered by doctors, surgeons, dentists, psychologists, and other medical providers
- Prescription drugs and insulin
- Prescription eyeglasses, hearing aids, dentures
- Supplies, diagnostic devices, and equipment
- Transportation to and from medical care
Those paying for care can review the full IRS list with their tax preparer to determine whether their medical expenses qualify as tax deductions.
Long-Term Care Services Eligible for Tax Deduction
Some families who cannot provide in-home care place their loved ones in nursing homes and assisted living facilities that specialize in caring for people with dementia. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), some long-term care services are eligible for federal tax deductions as unreimbursed medical expenses.
The services, however, must be required by a person that a licensed medical professional has certified as chronically ill. A person is considered chronically ill if the person:
- Cannot perform at least two activities of daily living, such as bathing, dressing, toileting, and eating without substantial assistance, for at least 90 days.
- Requires substantial supervision to be protected from threats to health and safety due to a severe cognitive impairment, such as Alzheimer’s disease and other dementias.
Besides certifying the adult as chronically ill, the licensed medical professional must also have written plans of care for the person that includes help with daily living activities, among other things.
When long-term care is involved, some people take out long-term care insurance that helps pay for care that Medicare, Medicaid, or other health insurances do not cover. Premiums paid on long-term care insurance may be eligible for a tax deduction or credit since premiums are considered a medical expense.
A tax advisor can determine whether the long-term insurance policy qualifies for income tax advantages.
Adults With Dementia May Qualify as Dependents
Adult children who care for a parent with dementia may be able to qualify for a few tax breaks. For example, under the federal Child Tax Credit and Credit for Other Dependents, adult children may be eligible to claim their parent with dementia as an “other dependent,” but only if they meet IRS requirements,
A non-related caregiver may also qualify to claim the person as an “other dependent,” if the caregiver lived with the person with dementia for the entire tax year and meet other IRS requirements.
There are other tax credits and deductions the IRS allows the person with dementia, their family members, or non-related caregivers can review with a tax advisor.
Catherine James, chief executive officer for the Alzheimer’s Association, Central New York Chapter, said it’s never too late for a person with Alzheimer’s disease or other dementias and their caregiver to create a “proactive” financial plan to pay the costs for care.
James said having a financial plan is not only beneficial during the tax season, but it also provides stability for an unpredictable disease.