How to Manage Finances as an Unpaid Adult Caregiver

Caregiving can be a very demanding role. It not only impacts your physical, mental, and emotional health, but it also takes a toll on your finances. 

Your finances are likely to be affected if you’re paying for the household expenses, medical bills, and other fees for the relative out of your pocket. Another way being an unpaid adult caregiver hurts your finances is by making it next to impossible to get a paid job.

Thus, it gets tricky for family caregivers to make ends meet as caregiving can be incredibly expensive.

Several non-profit organizations help caretakers find financial help and other resources for the relatives they’re taking care of. Medicare and Medicaid also cover a few caregiving services. As a family caregiver, you should know about the resources you can take advantage of.

There are a couple of options to lessen the impact of caregiving on your finances. You can take advantage of tax benefits and find paid caregiving programs that can provide relief.

How caregivers can opt for tax relief

Caregiving can be expensive, and thus, you should know how you can reduce the expenses to better your financial position. Certain tax benefits will let you look after your loved one without spending your own money.

Below are a few ways to save money on taxes being a caregiver. You should know that the Internal Revenue Code is a lengthy document written in a language that can be hard for a layperson to comprehend.

It is recommended that you seek the counsel of an accountant if you want to take advantage of the benefits mentioned in it.

1. Claiming your parent as a dependent

While filing your tax return, try claiming your parent as a dependent. More than 50% of your parents’ support should come from you every year to be eligible for this. Transportation, food, lodging, etc., are included. If the relative is staying at your home, you must include their room’s fair market value.

You can add utilities, groceries, and other expenses to your measures. Your parents will meet the IRS’s income test. The gross limit for 2021 was $4,300, and the IRS can change this amount every year.

2. Creating a flexible spending account

This account helps set aside money for healthcare expenditures. If the relative you’re caring for is your dependent, you can utilize the funds in your FSA to pay for their medical needs. Buying medical supplies, undergoing vision exams, and dental cleanings are things you can do with FSA funds.

You don’t need to pay taxes on your FSA contributions as it is deducted from your gross income. Each year you can save up to $2,270. The balance can’t be rolled over to the following year, and you lose it if you don’t use up a year’s balance.

However, your employer can either allow you to roll over $550 to the following year or give you two and a half months to utilize the funds.

3. Claiming allowable expenses on tax return

If the relative you’re taking care of is your dependent, you can deduct their expenses while filing your annual tax return. You can include all the expenses incurred while taking them to their medical appointments, like parking, toll, mileage, etc.

To be declared a dependent, the relative you’re taking care of will have to be a legal resident of the US, and more than 50% of their total support should come from you every year.

The IRS doesn’t let you list medical expenses if they aren’t 7.5% or 10% of your gross income after being adjusted. If your medical expenses are below that, then you should check with your state’s tax agency to determine if that state allows deducting medical expenses in such cases.

4. Setting up a multiple support declaration

If you have siblings with whom you share caregiving duties, you should set up a multiple support declaration. This would ensure that even if you’re not paying all the expenses by yourself, you’ll still be able to claim tax exemption for the relative you’re caring for.

You’ll need to fulfill the following criteria to be eligible for a multiple support declaration:

1. Everyone paying more than 10% of the expenses must give their consent to you taking the tax exemption.
2. You are paying more than 10% yourself.
3. The total amount that you and the others paid is more than 50% of the relative’s support.
4. Everyone participating in the declaration would’ve been eligible for the tax exemption had they contributed more than 50% of the support expenses.

After everyone gives their consent, they’ll need to sign the multiple support declaration form, which you’ll have to file with your tax return papers.

Get the legal papers in order

A power of attorney would make you an agent for your relative. This document separates your personal expenses from the expenses associated with your loved ones.

If you don’t have a power of attorney, exercise caution before signing documents on your relative’s behalf. Otherwise, you might unknowingly sign up to be held accountable for the bills.

You need to look closely into the language to understand if you’ll be held responsible. This includes times when they ask you to sign as the guarantor, responsible party, or cosigner.

Create a solid budget plan

You should contribute towards your IRA or your 401(k) as much as possible. For this reason, creating a budget to find areas where you can cut costs is necessary. You can choose to practice meal planning, get a less costly phone plan, or chop down your TV plan.

You should also cancel the subscriptions you don’t use. If you use utilities less, you’ll also be able to save some money. All these changes will help you save some money, which will bring you some relief.

Look for special programs to help with caregiving costs

Government programs, like Medicaid, can help you deal with caregiving costs. There are some social programs as well. However, it can be hard for you to understand and undergo the application process because of your caregiving duties.

Thus, you should seek help. Friends and family are a good starting point. However, it’s best to turn to an expert, like a Medicaid specialist, a financial planner, or an attorney.

Ask for help

You shouldn’t shy away from asking for help if you feel like you need it. You might think that you should handle everything as a caregiver, but it is better to ask for help whenever you need it.

You can ask your friends to check whether a bill is legitimate or help out with a task so that you don’t have to take a day off work.

Check your debts

Sometimes you might receive a different version of the bill you’ve already paid. You should check your statements to ensure that you don’t pay twice for the same bill. Sometimes you might receive bills for which you’re not obligated to pay.

Before you proceed to pay an invoice, you should always ensure that you are responsible for paying it. If you find that you’re not the one responsible for paying it, you should see if you can send it to probate. You should only think about paying it out of pocket if you can’t.

Don't ignore creditors

If you’re unable to pay off your creditors, you shouldn’t ignore them. If you talk to them, you might be able to reduce the bill or decide on a payment plan. They can also send the debt to collections.

Once a debt goes to collections, it will likely result in even more costs and debt. They can file lawsuits against you and can even garnish your wage. Thus you should avoid it and maintain contact with your creditors.

If you are struggling with several unsecured debts and you wish to pay them off with a monthly payment plan that you can afford, then you should consider debt consolidation.

Debt consolidation is an excellent option to pay off unpaid medical bills.

There are three ways to consolidate your debt:

1. Debt Consolidation Loan
   
   You can take out a debt consolidation loan. This loan combines all your debts into one account. You’re taking out a loan to pay off your multiple other obligations, and then you’re paying off the new loan through fixed monthly payments for a set period.
   
   You don’t have to worry about separate due dates and different interest rates. You might be able to get a lower interest rate if you take out a debt consolidation loan, and you might also get a lower monthly payment amount.
2. Balance Transfer Credit Card
   
   If you have multiple credit card debts with high interest, you can use a balance transfer credit card to pay off your debts. You can move all debts into the new balance transfer card.
   
   The card will often charge you 0% interest for 12 to 18 months. If you pay it off within that period, you won’t have to pay any interest; you’ll only pay off the principal amount.
3. Debt Consolidation Program
   
   You can also consolidate your debt through a debt consolidation program. In this program, a lawyer or a debt counselor representing you will negotiate with your creditors to reduce your interest rate, which will be fixed, and reduce the monthly payment to an amount you can afford. You’ll need to pay off your debts within a specified period.

Getting paid as a caregiver

Being an unpaid adult caregiver isn’t your only option. Your family member may be able to get financial assistance from the Department of Veterans Affairs, Medicare, Medicaid, or any other government agency to pay you for taking care of them.

Some long-term insurance plans pay for the training of unpaid caregivers who are family members, ensuring that your family member receives proper care.

Whether Medicare or Medicaid will pay family caregivers will depend on the state you reside in and whether your family member is eligible according to your state. You should check with Medicare in this regard. There are even some states in which those enrolled in Medicaid’s self-directed services program can hire their family members as paid caregivers.

Excerpted with permission from the Kapok: Caring Across Cultures blog post How to Manage Your Finances as an Unpaid Adult Caregiver.