Suze Orman Says Family Caregivers Spend More Than $7,200 a Year on Average. As a CPA, I See 4 Tax Breaks That Can Help

Mom does not have to live with you to count as your dependent, and paying for her care can qualify, too.

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Suze Orman is urging people to save more for retirement, and one of her reasons resonates with many households: a parent who needs help.

In a blog post, she cited AARP research showing that family caregivers with out-of-pocket costs spend an average of more than $7,200 a year.

Her point is simple: caregiving can force people to cut hours, take leave, or stop working for a while.

The figure is backed up by sobering research. A 2021 AARP study found average annual out-of-pocket caregiving costs of $7,242, or 26% of a caregiver’s income on average. Nearly 8 in 10 people caring for an adult family member face regular costs.

I agree with Suze about the need to save more. But after working as a CPA since 1981, I can also say this: the IRS offers several caregiver-related tax breaks that are easy to overlook.

Before you file, here are four worth reviewing.

1. Claim Mom or Dad as your dependent

Your parent does not have to live with you in order to qualify as your dependent. The IRS says you may claim a parent if their gross income is below the annual limit and you paid more than half of their support.

One important wrinkle is that Social Security benefits count as support the parent provided for themself when the IRS applies the support test. If those benefits cover most of the bills, you may not qualify. It is worth running the numbers before assuming you can claim the exemption.

Helping cover more than half of a parent’s expenses can also reduce the money you are able to save for your own retirement, which is exactly the concern Suze raises.

If you have meaningful savings, it may be smart to get a second opinion.

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2. File as head of household, even if Mom lives elsewhere

If you are single, this filing status can reduce your tax bill. You may qualify as head of household if you can claim your parent as a dependent and you pay more than half the cost of maintaining her main home for the full year.

The home does not have to be yours. The IRS says you may still qualify even if your parent does not live with you, and payments for a parent’s rest home or home for the elderly can count as keeping up the parent’s main home.

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3. Deduct medical bills you pay for a parent

If you itemize deductions, you may be able to include medical expenses you paid for a parent who qualifies as your dependent. For this deduction, the parent can still qualify even if their gross income is above the dependent income limit.

The limitation is the threshold: you can deduct only the amount of total medical expenses that exceeds 7.5% of your adjusted gross income. Large expenses, such as hospital bills or nursing care, are where this deduction can make the biggest difference.

4. Get a credit for adult day care while you work

If Mom is your dependent, lives with you for more than half the year and cannot care for herself, paying for adult day care so you can work may qualify for the child and dependent care credit.

IRS Publication 503 gives the same kind of example: a daughter who pays an adult day care center to care for her disabled father while she works.

For the current tax rules, you may count up to $3,000 of care expenses for one qualifying person, or $6,000 for two or more. The credit is then calculated as a percentage of those costs, based on your income.

Choosing the right day program or senior living arrangement can be a major task in itself. A Place for Mom can help families compare senior care options in their area.

My honest take

Suze is right that caregiving can damage a retirement plan if it catches you off guard. The spending often adds up quietly, through gas, groceries, copays and prescriptions.

Save every receipt and keep a record of what you spend on Mom or Dad from the start, because the support test, the medical deduction and the care credit all depend on documentation.

It also helps to talk early. Planning for a parent’s care is much easier than scrambling after the need suddenly arises.

Sources: Suze Orman; AARP; IRS caregiver FAQs; IRS Publication 501; IRS Publication 503