Making home care tax deductible is a top priority for many clients and families who are struggling with the high cost of quality, legally compliant in home services.
In a presentation to home care professionals sponsored by CAHSAH on February 28, 2018, Doug Mueller, President of Mueller Prost, asserted that the Tax Cuts and Jobs Act of 2017 succeeds in making home care tax deductible for many households, if certain criteria are met.
The home care tax deduction was not specifically created in tax law, he said. Instead it was a significant change hidden in a provision of the HIPAA (Health Insurance Portability and Accountability Act) of 1996. HIPAA is legislation that governs the security of medical information. Mueller stated it “added a new category of medical deduction ‘qualified long term care services’” by amending Section 213(d) of the Internal Revenue Code.
It was this act that helped in making home care tax deductible for many families.
So what are qualified long term care services? The definition is “necessary diagnostic, preventative, therapeutic, curing, treating, mitigation and rehabilitation services and maintenance or personal care services.”
Mueller stated that home health and home care services clearly fall into this category.
But there are more rules; of course, this is tax law after all! The individual receiving services must be chronically ill – which sounds terrible, almost like a hospice qualification. But it’s not so terrible. In reality, the definition of chronically ill for the IRS matches what most long term care insurance companies use as qualifying factors for care.
A chronically ill individual is defined as “an Individual (who) needs substantial assistance or standby assistance with at least two activities of daily living (ADL’s) for at least 90 days within the prior 12 months and provided pursuant to a plan of care certified by a certified ‘health care practitioner’.”
ADL’s include eating, toileting, transferring, bathing, dressing and continence.
Clients with dementia don’t necessarily need help with ADL’s, but still need home care for safety. So chronically ill can also mean someone who needs “substantial supervision to patient for health and safety reasons due to cognitive impairment.”
In order for home care expenses to be deductible, Mueller stated, care must be “provided pursuant to a plan of care prescribed by a health care practitioner.”
What is a Plan of Care? In the most general form, it sums up a client’s diagnosis, general goals and wishes, safety issues and defines which ADL’s should be performed. More complex plans of care also include a medication profile.
Who is a health care practitioner under the law? It can be a physician, including the client’s own physician, a registered professional nurse or a licensed social worker. Having a health practitioner involved is key in making home care tax deductible.
A client paying an outside agency can deduct the cost of care as a medical expense in most cases. However, if the client pays the caregiver directly, then the client is treated as an independent employer for tax purposes. Consult your accountant if you have questions about that. Remember that an employer, even a household employer, must pay payroll taxes, have worker’s compensation insurance and follow all wage and hour laws, including over time and sick pay.
Mueller said the general public and professional advisers need to know that most people will qualify for this deduction. A study in 2012 found that home health agencies provided bathing assistance to 95.1% of clients, dressing services to 83.8% of clients, followed by toileting at 64.6% and eating assistance at 51.2%. *National Center for Health Statistics
Mueller provided us with two models of letters in order to certify long term care in case tax deduct-ability is challenged. At Home Nursing Care is making copies of those letters available for download here.
In addition, Mueller stated that there are ways to include other expenses- adding meals provided by the client to the personal care attendant or extra electric or gas charges.
He gave this example of how one family could succeed in making $50,000 worth of home care tax deductible: an elderly client with a broken hip and limited mobility could deduct $50,000 per year in a medical deduction if prescribed by a plan of care by a licensed health care practitioner including:
a. Her direct payments to the home care agency – $3700 monthly
b. $300 per month food charges for personal care attendant
c. $166.67 per month for extra utilities and household maintenance
He says this deduction applies to U.S. Citizens, legal residents and residents of Canada and Mexico. If missed, returns can be amended to include medical deductions going back three years.
As a licensed and accredited private duty health care agency, At Home Nursing Care provides an RN Assessment and Plan of Care for each client, including a detailed listing of diagnosis, needs, ADL’s to be performed, safety concerns, a medication profile and reconciliation and emergency planning. We can provide a detailed annual report of all charges to make it more convenience for tax purposes.
Here are a few more limits for those of you with strong accounting backgrounds – Mueller says the Medical Deduction Limits are:
a. 7.5% AGI 2017 and 2018 for regular and AMT
b. 10% AGI for 2019 and beyond for regular and AMT
He recommended that you speak to your own tax adviser to see what applies specifically to you or your client.
Lauren Reynolds is Administrator/Founder of At Home Nursing Care and is the author of this blog. She is a member of the board of directors for CAHSAH. She worked for 17 years as an award-winning consumer advocate and investigative reporter, fifteen of those years for ABC 10News in San Diego.
Lauren entered the field of home are after her young mother needed in home care while battling terminal cancer. You can learn more about Lauren by clicking here. Call 760-634-8000 for more information.