A Tax Expert Explains How to Take a Homecare Tax Deduction

Filing for a homecare tax deduction is a top priority for many clients and families who are struggling with the high cost of quality, legally compliant in home care services.

In a presentation to home care professionals sponsored by CAHSAH in 2018, Doug Mueller, then President of Mueller Post, asserted that the Tax Cuts and Jobs Act of 2017 succeeds in making a homecare tax deduction possible for many households, if certain criteria are met.

The ability to get a homecare 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 creating a homecare tax deduction for many families.

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Long Term Care Services and a Homecare Tax Deduction

What are qualified long term care services to create a homecare tax deduction?

Mueller described what services will likely lead to a homecare tax deduction, those services that qualify as long term care services. He said 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 for creating a homecare tax deduction.

What are the rules for a homecare tax deduction?

There are several rules to be followed when fling a homecare tax deduction. 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.”

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A registered Nurse meets with a client to create a plan of care, needed for a homecare tax deduction

A plan of care is needed to make homecare tax deductible

In order to take advantage of the homecare tax deduction, 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 homecare tax deductible.

Our agency, At Home Nursing Care, only uses registered nurses to create a full plan of care that meets these guidelines.

A client paying an outside agency, such as At Home Nursing Care, can deduct the cost of care as a medical expense in most cases.  However, if the client pays the caregiver directly, without following the wage and hour rules, or sick pay rules, the client may be opened up to liability. Consult your accountant if you have questions, as caregivers are never legally independent contractors.

Remember that an employer, even a household with only one employee, must pay payroll taxes, have worker’s compensation insurance and follow all wage and hour laws, including over time and sick pay. Caregivers must be paid through a payroll company, never a personal check. AB 5 and a new Department of Labor final rule make a very strong case against misclassifying workers, plus private care may not meet the standards to file a homecare tax deduction.

How many people qualify for a homecare tax deduction?

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 with two models of letters in order to certify long term care in case the homecare tax deduction 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.

Example of a homecare tax deduction

He gave this example of how one family could succeed in turning $50,000 into a homecare tax deduction: 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.

Current tax law says medical and dental expenses can be deducted once they are 7.5% higher than the Adjusted Gross Income for 2023. Mueller 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.