If you care for a loved one, you may be entitled to certain tax deductions and credits.
You already knew that caring for a loved one would require a lot of your time.
But perhaps you did not expect him to demand so much of your money. The average family caregiver spends approximately $7,200 a year on a household, medical and other expenses related to the care of their loved one.
Luckily, there is light at the end of the tax year: federal tax credits and deductions that are applied directly or indirectly to your costs of care. We share some ways dependent and family tax deductions caregivers could potentially reduce their tax burden.
Tax credit for “other dependents”
For a long time, taxpayers have been able to claim a tax credit for their children up to age 16. Unlike a deduction, which reduces your taxable income, a tax credit directly reduces the amount you must pay. The 2017 federal tax law expanded the Child Tax Credit (CTC) to allow taxpayers to claim up to $500 as a non-refundable “credit for other dependents,” which includes elderly parents.
Under this provision, valid through the tax year 2025, the Internal Revenue Service (IRS) allows relative caregivers to claim some people related by adoption, blood, or marriage—and even certain friends—as “other dependents” on their federal tax return, as long as both parties meet the IRS requirements:
Legal residence – Your loved one is a US citizen, naturalized US citizen, or legal resident of the US and has a valid identification number, such as a Social Security number, individual taxpayer identification number, or taxpayer identification card for adoption.
Income – Your loved one’s gross income is not more than the limited amount for that tax year, in 2021 it is $4,300.
Dependence – Your loved one lives with you or you pay more than 50% of their living expenses, including clothing, food, housing, medical and dental care, transportation, and other necessities. Two or more people can split these expenses, but only one person can claim the person as a dependent, and that person must pay at least 10% of the support costs. This is called a “multiple support agreement.”
Living place – You can claim a friend, foster aunt, or other unrelated loved one as your dependent, but he or she must have lived with you for the entire year.
Married Dependent Consideration – You can claim a dependent who is married only if the person does not file a joint tax return with their spouse, or files a joint return only to get a refund of the tax withheld and does not claim any other credits or deductions.
Not dependency – You can claim a dependent only if you are not a dependent of another taxpayer.
The IRS has an interactive tool to help you determine if a dependent helps you qualify for a tax credit.
When filing your taxes
Keep detailed records. For example, create a record showing that your dependent lived with you for at least six months.
Keep receipts and document all related expenses in writing. This will ensure that you don’t forget any allowable deductions and can serve as part of your documentation in the event of an audit.
Keep in mind that adding a dependent makes them part of your household, which could have implications in areas like your entitlement to Medicaid or the cost of health insurance you buy through the Marketplace provided by the Affordable Care Act. Price.
An additional advantage: your status as head of the family
If you are a single taxpayer, or married, but live apart from your spouse, adding a family member as a dependent can make your head of the household. This change in status increases your standard deductions for the tax year 2021 to $18,800, from $12,550 if you’re single or married filing separately. Remember that if you claim the standard deduction you will not be able to claim any personal exemption.
To claim head of the household status, it is not necessary for either of your parents to live with you. Any other relatives must have lived with you for at least six months of the tax year.
If you use a multiple support agreement to claim your dependent, you cannot use that dependent to qualify as head of household.
Deduct your dependent’s medical expenses
You can deduct the money you paid to cover your loved one’s unreimbursed medical expenses if the qualified medical expenses of everyone on your return add up to more than 7.5% of your adjusted gross income for that year, and the total of your itemized deductions is more than your standard deductions.
Review IRS Publication 502 to see what you can, or cannot, deduct. Here is an example of acceptable deductions:
Activities for seniors with special needs
- Adult daycare or home health aide services if you work outside the home
- Cost of assisted living facilities, if medically necessary
- Copays and deductibles
- Home and vehicle modifications necessary for safety or mobility
- Physical therapy
- Medications and prescription medical equipment, such as canes or walkers
- Home health aide services during respite care
- Transportation to appointments or medical services
- Not deductible: Items and services that benefit everyone in the household.
Flexible Spending Accounts and Health Savings Accounts
Flexible spending accounts (FSAs) and health savings accounts (HSAs) take money from your earnings on a pre-tax basis. That money goes into a health savings plan that you can use to pay for out-of-pocket health care expenses for yourself and your dependents.
You can use one of these accounts to pay for your dependent’s expenses, such as medical bills, copays, insurance deductibles, over-the-counter medical supplies, personal protective equipment, and even some treatments that your health insurance doesn’t cover. However, bills you pay with your FSA or HSA account will not be tax deductible as medical expenses.
Credit for child and dependent care expenses
Unlike the child tax credit or the credit for other dependents that confers a tax exemption for eligible children or dependents, the credit for child and dependent care expenses is based on the money you spend to care for that person. person or persons. For the tax year 2021, you can claim a share of up to $8,000 in caregiving costs for one person and up to $16,000 for two or more.
Although it sounds strange because of the name, this tax credit does not require your loved one to qualify as your dependent under certain circumstances. But there are rules you must follow when applying for credit. Between them:
Cohabitation- The person you claim as a dependent must have lived with you for at least six months during the tax year.
Dependent- The person is or could be your dependent, except for having gross income above the maximum allowable — $4,300 in 2021 — or filing a joint tax return with a spouse for that year.
The inability- The person is physically or mentally unable to care for themselves.
Necessary to be able to work. In order to go to work or look for a job, you need to pay for an adult or child day care program or pay for a home health care service for a loved one.
Criteria for the spouse to qualify. If you are married, your spouse must also work, be a student, or be disabled for you to receive this credit.
If you plan to claim any of these credits or deductions, be sure to list all of your expenses and find someone to help you prepare your tax return, says Lynnette Lee-Villanueva, vice president of the AARP Foundation Tax-Aide, a Free tax return preparation service staffed by AARP volunteers. Tax-Aide has more than 5,000 locations across the United States that are open during tax time and offer a locator to help you find the location closest to you.
When you use filemytaxesonline.org to prepare and file your taxes, you don’t need to know anything about tax forms or tax tables. We’ll ask simple questions, fill out all the forms correctly, and do all the math for you.