A Guide to Caregiver Finances

Caring for an older loved one is highly rewarding, but it can strain your finances, especially if you use your personal income to cover their medical costs, household expenses, and other fees. In 2016, AARP surveyed 2,000 unpaid caregivers and discovered that they spent an average of close to $7,000 per year of their own money to pay for a loved one’s needs.

Even if you’re not spending a lot of your own money, unpaid caregiving can affect your finances by making it difficult to take on paid opportunities. As a result, “Many family caregivers do find themselves in tight financial situations, and caregiving can be extremely costly,” according to Jaclyn Strauss, a Certified Public Accountant. Strauss continues, “Several non-profit organizations assist caretakers in locating resources and financial assistance for their elderly relatives. Medicare and/or Medicaid also do cover certain caregiving services as well. Family caregivers need to become informed as to what resources are out there and available.”

If you’re caring for a loved one, you may find yourself facing financial strain. We created this guide to help caregivers like you understand what options are available to help alleviate the financial impact of caregiving, including tax benefits and paid caregiving programs that can lighten the load and make it easier for you to balance your caregiving duties with work and family life.

Now that you know how much it can cost to care for a family member, it’s important to learn how to reduce some of these out-of-pocket costs to strengthen your financial situation. You may be missing out on tax benefits that can help you care for your loved one without depleting your own funds.

Below, we explain several ways in which you can potentially save some money on your taxes due to your role as a caregiver. It’s important to note that the Internal Revenue Code is thousands of pages long, and it’s written in technical language that can be difficult for the average taxpayer to understand. If you need help taking advantage of these tax benefits, seek help from an accountant in your area.

If possible, claim your parent as a dependent when you file your tax return. To qualify, you must provide more than half of your parent’s support throughout the year. Support includes food, lodging, transportation and other needs.

When calculating the amount of support you provide, don’t forget to include the fair market value of their room in your home, if you provide one. You can also consider utilities, the cost of groceries and other living expenses that you pay. Your parent must also meet the income test established by the IRS. For 2021, the gross limit is $4,300; the IRS may change this limit from year to year.

A flexible spending account is an account designed to help people set aside money for healthcare expenses. If your loved one qualifies as a dependent, you can use the funds from your FSA to cover their health-related expenses, including vision exams, dental cleanings, and medical supplies.

FSA contributions are deducted from your gross income, so you don’t pay any tax on them, but you can only save a maximum of $2,750 per year, as of 2021. In most cases, FSA funds are “use it or lose it,” meaning you can’t roll your whole balance to the next year; however, your employer has the option of allowing you to roll over $550 to the next year or giving you an extra two and a half months to spend the money.

If your loved one qualifies as your dependent, you may be able to deduct many of their expenses when you file your annual tax return. This includes cab fare, mileage, tolls, parking and other transportation expenses associated with getting them to their medical appointments.

To qualify as your dependent, your parent must be a legal resident of the United States and receive more than half of their total support from you during the year. Although the IRS doesn’t allow you to itemize medical expenses unless they account for either 7.5% or 10% of your adjusted gross income, check with your state tax agency to determine if your state allows you to deduct medical expenses that fall under the IRS threshold.

If you share caregiving duties with your siblings, consider setting up a Multiple Support Declaration to ensure you can claim the tax exemption for your parent even if you’re not paying all of their expenses on your own. You must meet the following criteria to qualify for a Multiple Support Declaration:

• Each person who pays more than 10% of your loved one’s expenses must agree that you can take the tax exemption.
• You personally provide more than 10% of your loved one’s support.
• Each contributor involved in the declaration could have claimed the tax exemption, except they contributed less than half of the total support costs.
• The amount you and your other family members paid totals more than half of your loved one’s support.

Once everyone agrees that you can take the exemption, they must all sign a Multiple Support Declaration form. You’ll file this form with your tax return.

• IRS Publication 501: Dependents, Standard Deduction, and Filing Information
• Internal Revenue Service: Dependents
• Internal Revenue Service: Qualifying Relative Dependents
• Internal Revenue Service: Overview of the Rules for Claiming a Dependent

Once you sort out your tax situation, you can search for government programs designed to help elderly adults and adults with disabilities pay for medical expenses and other necessities. Each program has specific eligibility requirements, so be sure to read the fine print. To learn more about the benefits available, contact your local Area Agency on Aging or your State Health Insurance Assistance Program (SHIP).

If your loved one has Medicaid coverage, they may qualify for self-directed services. Under this program, Medicaid enrollees have control over who provides their caregiving services, how those services are delivered and when the services are provided. The guidelines differ from state to state, but the person with Medicaid coverage typically has a budget that can be used to pay for caregiving services. If your loved one qualifies for the program, they can use the funds to pay for care, leaving more money available for other expenses.

The U.S. Department of Housing and Urban Development has several loan programs designed to help people pay for home renovations and repairs. Under the Title I program, your loved one may qualify for up to $25,000 in financing to rehabilitate a single-family property or $12,000 per unit in a multifamily building. Home modification loans are offered by HUD-approved lenders at market interest rates, so your loved one will need to meet the minimum credit requirements established by the lender. You can search for approved lenders on the HUD website.

If your loved one served in the military and needs help performing daily activities, they may qualify for the Aid and Attendance benefit offered by the Department of Veterans Affairs. This program increases the pension amount your loved one receives each month, ensuring that funds are available to pay for caregiving services. Even if your loved one doesn’t need help performing daily activities, they may qualify for the Aid and Attendance benefit if they spend most of their time in bed due to an illness, have limited eyesight or live in a nursing home due to a physical or mental disability.

Your loved one can apply in person at a regional VA office or print an application and mail it to the Pension Management Center serving their state. Use the VA website to find out which PMC to use.

If you and your loved one find the paperwork too confusing, it may be worth it to seek the help of a professional. Be advised, though, that it’s not legal for a professional to be paid a fee to help someone qualify for this VA benefit. However, if you are already paying a professional, like a local Elder Law attorney to help with the overall estate and trust planning, they will likely assist with the VA paperwork at no cost since they are being paid a fee for the Estate Plan.

The Social Security Administration pays benefits to surviving widows and widowers, which may help your loved one cover more of their own expenses. These benefits aren’t always retroactive, so time is of the essence when applying. Encourage your loved one to apply for survivors benefits as soon as possible to avoid losing any available funds. To apply by telephone, call 1-800-772-1213. They may be asked to provide a birth certificate, proof of citizenship or other documents to support their claim.

Check with local and state agencies to determine if your loved one qualifies for any free transportation services. These programs don’t pay benefits directly, but they can reduce your out-of-pocket caregiving expenses by limiting the number of times you have to drive to medical and dental appointments. If your loved one qualifies, you may save money on parking fees, tolls, and gasoline, and you won’t put as much wear and tear on your personal vehicle. Medicaid may also be able to offer rides to non-emergency appointments. The guidelines vary by state, so check with your local Medicaid office to determine if your loved one qualifies.

The Medicare Qualified Beneficiary Program covers the cost of Medicare Part A and Part B premiums, deductibles, copays, and coinsurance, which can free up much-needed funds for your loved one’s other expenses. To qualify for this program, your loved one’s income can’t exceed $1,060 per month, and there’s an individual asset limit of $7,730. Contact Medicare to learn more about the eligibility requirements.

Finances are an important aspect of caregiving, so it’s important to discuss your loved one’s finances with them and with other family members involved in their care. Lauren Klein, CFP, notes that “Money can be a highly emotional topic. Just as it can be difficult for many seniors to understand why they need to hand over the car keys when driving becomes unsafe, handing over control of their finances can also become difficult, to say the least. Ease the way with a family meeting. Have an open, honest discussion about how much money is available to pay for your parents’ care, and decide who is the most suitable person to manage the assets when they are no longer capable of making prudent financial decisions. Decide when and how to hand over the financial reins—together.”

Even though talking about money is important, it can also be uncomfortable, especially when broaching the subject with a parent who raised you and taught you how to handle your own finances. Below, we provide some tips to make the conversation easier and a little less awkward.

Plan Ahead

Don’t go into this conversation unprepared. It can help to gather statistics on the average costs of care to show your loved one that you’re concerned about their well-being and have their best interests in mind. Plan to have the conversation when everyone is as relaxed as possible; don’t bring up your loved one’s finances in the middle of an argument or during a stressful medical appointment.

Emphasize Your Desire to Help

Skeff Bisset of Bisset Financial Group states, “One way to consider opening the conversation is to share with them that you want to be their steward when they can no longer make decisions for themselves. Share with them that you want to be equipped with their intents so that you can follow through for them.” If you emphasize your desire to help, your loved one may be a little more open about their financial situation.

Talk About Your Own Financial Planning Experiences

Open the conversation by talking about some of the experiences you’ve had with financial planning. “Mom, I’ve been having trouble deciding if I should keep my money in the stock market or invest in something with less risk. What did you end up doing with your retirement funds?” is a non-confrontational way to get the conversation going. Instead of asking your loved one a direct question about their finances, you’ll be asking them to share their wisdom.

Use a Life Event or Current Events to Start the Conversation

If you’re not comfortable sharing information about your finances, use current events or a special life event to kick off the conversation. Patrick Simasko, an elder law attorney and wealth preservation specialist, says, “I recommend that you start around the holidays when all children involved are with each other. Start the conversation by discussing a recent story that happened in which an elderly person was taken advantage of—unfortunately, these stories are too common. Start with stories and lead into, ‘Do you have your paperwork in order?’ When they say they are all set because they had a will done years ago, ask questions and make sure everything is up-to-date and powers of attorney are in place.”

You can also use happy occasions, such as the birth or marriage of a grandchild, to get the conversation rolling. If you don’t have any family events coming up, turn to the nightly news for inspiration.

Talk about How to Pay for Home Modifications to Age in Place

If you notice your loved one is having trouble navigating through their home as they age in place, such as difficulty walking up and down the stairs, getting around the house in a wheelchair, or getting in and out of the shower, talk to them about changes they can make to their home to make them more comfortable. Ask if they have long-term care insurance, since one potential benefit of an LTC policy is getting money to pay for limited home modifications, or if they’re willing to apply for government benefit to help. Then transition the conversation to other care issues you need to address.

Remain Calm and Respectful Throughout the Conversation

Even when emotions run high, it’s important to remain calm and respectful. If you’re frustrated, table the discussion and let your loved one know you can talk more when everyone is in a better frame of mind.

If you’re having trouble finding the right words to start a conversation about finances, consult the list of questions below and choose the one that’s most relevant to your situation.

• Do you have a Financial Advisor who helps you with overall financial decisions?
• Do you have long-term care insurance?
• Do you have plans in place to pay for long-term care if you need it?
• If you needed emergency medical care, would you have enough money on hand to pay the bill?
• Have you ever had an attorney draw up a will?
• Do you have a living trust?
• What sources of income do you have?
• What type of health insurance do you have?

Now that you’ve had that all-important conversation, you may be wondering if it’s possible to get paid to care for your parent. There are programs out there to compensate family caregivers, but they’re not available in all areas, and you might not qualify for each one. Below, we explain how you might be able to get paid to provide ongoing care.

Medicaid’s self-directed services program allows Medicaid recipients to direct their own care rather than relying on agencies and other managed care services. The eligibility guidelines vary by state, so it’s important to check with your state’s Medicaid program to determine if your loved one qualifies. Some states only allow Medicaid enrollees to pay family members who don’t live in the same household. Other states have restrictions on which family members are allowed to get paid for caregiving; for example, some states prohibit spouses from acting as paid caregivers.

To enroll in self-directed services, your loved one must undergo an assessment, create a written service plan outlining the type of assistance needed and choose a caregiver.

Aid and Attendance

If your loved one served in the military and meets one of the following requirements, they may qualify for the VA Aid and Attendance benefit, which provides funding for caregiving.

• Confined to bed due to a disability
• Limited eyesight (less than 5/200 in both eyes), even when wearing glasses or contact lenses
• Needs help with bathing, dressing or other activities of daily living
• Lives in a nursing home due to a physical or mental disability

Eligible veterans receive a pension increase that can be used to pay you for caregiving services. Your loved one may also be eligible if they’re the surviving spouse of a qualifying veteran.

Program of Comprehensive Assistance for Family Caregivers (PCAFC)

PCAFC offers a monthly stipend for family members who care for veterans who need assistance with activities of daily living due to a traumatic injury sustained on or after September 11, 2001. The injury must have occurred in the veteran’s line of duty. To get paid as a caretaker, you must be at least 18 years old and a family member, extended family member or housemate of the qualifying veteran. Qualifying veterans must be enrolled in VA services and need supervision or help with personal care due to their injuries.

If you don’t qualify for any government or nonprofit programs, don’t lose hope. You may still be able to get paid for your services if your family has access to certain funds. One option is for your loved one to use their long-term care insurance benefits to pay you for caregiving. Depending on the terms of the policy, you may have to obtain some type of caregiving license, but if you’re already providing unpaid care, it may be worth getting the required credential so you can be compensated.

If your state has any laws requiring paid family leave, you may be able to get paid by your employer while you take time off to care for your loved one. This isn’t a permanent solution, but it can help you provide care for a few weeks after a hospitalization or until you’re able to arrange for long-term care.

“About Form 2120, Multiple Support Declaration”. Internal Revenue Service, 11 February 2021, https://www.irs.gov/forms-pubs/about-form-2120. Accessed 20 July 2021.

“Can I get paid to be a caregiver for a family member?”. AARP, 1 July 2021, https://www.aarp.org/caregiving/financial-legal/info-2017/you-can-get-paid-as-a-family-caregiver.html. Accessed 20 July 2020.

El-Sibaie, Amir. “2021 tax brackets”. Tax Foundation, 20 October 2020, https://taxfoundation.org/2021-tax-brackets/. Accessed 20 July 2020.

“National Association of Area Agencies on Aging”. n4a.org, n.d., https://www.n4a.org/. Accessed 20 July 2020.

“Local Medicare Help”. Shiphelp.org, n.d., https://www.shiphelp.org/. Accessed 20 July 2020.

“Form SSA-10 | Information you need to apply for widow’s, widower’s or surviving divorced spouse’s benefits”. Social Security, n.d., https://www.ssa.gov/forms/ssa-10.html. Accessed 20 July 2020.

“Let Medicaid give you a ride”. CMS.gov, n.d., https://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-Prevention/Medicaid-Integrity-Education/Downloads/nemt-factsheet.pdf. Accessed 20 July 2020.

“Property improvement loan insurance (Title I)”. U.S. Department of Housing and Urban Development, n.d., https://www.hud.gov/program_offices/housing/sfh/title/title-i. Accessed 20 July 2021.

“Qualified Medicare Beneficiary (QMB) Program”. Benefits.gov, n.d., https://www.benefits.gov/benefit/6177. Accessed 20 July 2020.

“Self-directed services”. Medicaid.gov, n.d., https://www.medicaid.gov/medicaid/long-term-services-supports/self-directed-services/index.html. Accessed 20 July 2020.

“Surprising out-of-pocket costs for caregivers”. AARP, 1 October 2019, https://www.aarp.org/caregiving/financial-legal/info-2019/out-of-pocket-costs.html. Accessed 20 July 2021.

“Tax tips for family caregivers”. AARP, 4 March 2021, https://www.aarp.org/caregiving/financial-legal/info-2017/tax-tips-family-caregivers.html. Accessed 20 July 2021.

“Using a flexible spending account (FSA)”. HealthCare.gov, n.d., https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/. Accessed 20 July 2021.

“VA Aid and Attendance benefits and Housebound allowance”. Department of Veterans Affairs, 4 September 2020, https://www.va.gov/pension/aid-attendance-housebound/. Accessed 20 July 2021.