By Kim Boyer
Many times family members or friends provide care to a loved one for a fee. These family members or friends are typically unlicensed caregivers. Can the person paying for the care deduct the payments as a medical expense on their income tax return?
Medical expenses, not compensated for by insurance or otherwise, may be allowed as a deduction to the extent that the expenses exceed a certain percentage of the taxpayer’s adjusted gross income. Medical care can include amounts paid for “qualified long-term care services” as defined herein. The taxpayer must be certified as “chronically ill” by a licensed health care professional. The services must be provided pursuant to a plan of care prescribed by a licensed health care professional.
The U.S. Tax Court ruled on the issue of whether payments to unlicensed care providers were deductible. Estate of Lillian Baral v. Commissioner of Internal Revenue (July 5, 2011).
The tax court examined whether payments totaling $49,580 made by Lillian to Ms. Pzevorski and Ms. Jakubowski were deductible. Neither of them were licensed healthcare providers. Thus, the payments were not deductible as medical expenses. However, the court found that payments to them could be deducted if their services qualified as “long-term care services” as defined under the tax code.
After analyzing the tax code, the Court found that the care provided constituted “maintenance or personal care services” for a “chronically ill individual” provided pursuant to a “plan of care prescribed by a licensed health care professional.” Thus, Lillian could deduct $43,273 of the payments made to the care providers (the amount paid which exceeded 7.5% of her adjusted gross income).
Qualified long-term care services means necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services or maintenance or personal care services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
Chronically ill individual means any individual who has been certified by a licensed health care practitioner as (i) being unable to perform at least two of six specified activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of at least 90 days due to a loss of functional capacity; (ii) having a level of disability similar to the ADL level of disability as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services or (iii) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.
Maintenance or personal care services means any care that has the primary purpose of providing needed assistance with any of the disabilities that result in the individual’s qualifying as a chronically ill individual, including protection from threats to health and safety due to severe cognitive impairment.
Licensed health care practitioner means any physician, registered professional nurse, licensed social worker, or other individual who meets the tax code requirements.
For Medicaid purposes the payments will be considered gratuitous when provided by a family member, unless there is a written contract. It is advisable that there be a written contract providing for reasonable compensation and specifying the nature of services to be provided.
This information is for general informational purposes only and does not constitute legal advice. For specific legal questions, you should consult a qualified attorney.