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Caregiving for a loved one takes time and effort. There are also many expenses associated with it. According to the AARP, a caregiver spends about $2700 a year on household, medical, and many other costs associated with caregiving.
During the tax season, caregivers can recoup some expenses due to federal tax credits and deductions that apply to costs of caregiving. These are some ways that caregivers can reduce their taxes.
‘Other Dependents’ Tax Credit
This type of tax credit allows taxpayers to claim up to $500 as a nonrefundable “Credit for Other Dependents” which includes elderly parents. Under this provision, which is in effect until 2025, the IRS (Internal Revenue Service) allows family caregivers to claim individuals related by adoption, marriage or ‘other Independents’ on their federal tax return as long as the following requirements are met:
- Legal Residency
Your loved one must be a US citizen, U.S. national, or legal U.S. resident and must have a valid social security number, Individual Taxpayer Identification Number, or Adoption Taxpayer Identification Number.
- Income
Your loved one must have a gross income no greater than $4,300 which is the cutoff number for 2021.
- Dependency on You
Your loved one must live with you, and you must pay more than 50 percent of their living expenses, such as clothing, food, lodging, medical, recreation, and other expenses. Two or more persons can split these expenses but only one can claim them as the dependent and that person must pay at least 10 percent of support costs. This is called a “multiple support” agreement.
- Living arrangements
You can claim a friend or others as a dependent, but they must have lived with you an entire year for you to do so.
- Married Dependent Consideration
You can claim a dependent who is married only if he or she does not file a joint return with their spouse or files a joint return only to get a refund of income tax withheld and doesn’t claim other credits or deductions.
- Non-Dependence
You can only claim a dependent if you are not a dependent of another taxpayer.
Tips to Know When Filing
- Detailed Records are Important- create a log of all expenses
- Receipts- Keep a log of all expenses and receipts for each
- Dependent Becomes Part of Household- If you claim a dependent on your taxes, they become a part of your household
Head of Household Status- What You Need to Know
In the case that you are a single taxpayer or married but not living with your spouse, and if you decide to add a dependent (such as a relative that lives with you), you will be the head of household. If you have this status, for 2021 tax year your standard deduction would then be $18,800 from $12,550 if you are single or married but filing separately. Keep in mind that if you take the standard deduction then you can’t claim personal exemptions.
A parent does not have to live with you for you to claim the head of household status, however any other relative must have lived with you for at least half a year.
In the case that you use the multiple support agreement to claim a dependent, you can’t use a dependent to file as a head of household.
Deducting a Dependent’s Medical Expense
If you are covering the costs of medical expenses for your loved one, you can deduct these expenses only if the qualified medical expenses of everyone claimed on your taxes totals more than 7.5 percent of your adjusted gross income for that year and if your total itemized deductions are more than your standard deduction.
Some acceptable medical expense deductions include:
- Adult day care of home health care worker costs
- Assisted living costs
- Copayments
- Hearing aids
- Physical therapy
- Professional health aide costs
- Transportation for medical appointments
Keep in mind that items and services that benefit the household are not deductible.
Flexible Spending and Health Savings Accounts
Flexible spending accounts (FSAs) and Health Savings Accounts (HSAs) take money from your earnings before taxes and deposit them into a health savings account that you can use for medical expenses.
You can use these accounts to pay for medical bills, copays, and insurance deductibles but you cannot take a tax deduction for that bill as a medical expense.
Child Care and Independent Care Credit
This credit is based on money you spend to care for that person or people. For the 2021 tax year, you can claim up to $4,000 in caregiving costs for one person and up to $8,000 for two or more. The tax credit does not require that a loved one qualify as your dependent in specific circumstances. But there are some rules you need to follow so you can claim it:
- Cohabitation
The person you claim for the credit must have lived with you at least six months during the tax year.
- Dependency
The person needs to be your dependent or could be exempt for having a gross income higher than the allowed maximum, which is $4,300 for 2021 or filing a joint tax return with a spouse that year.
- Incapacity
The person is physically or mentally unstable to care for himself or herself.
- Necessity for Employment
You pay an adult care program, child or home care program or home worker to assist your loved one so you can work or look for work.
- Spousal Qualification
If you are married, your spouse must work, be a student, or be disabled for you to qualify for this credit.
If you plan to claim this or any of the mentioned credits or deductions, be sure to outline your costs and have someone help with your taxes.
Do you need helping in caring for a loved one? Reach out to Assisting Hands Home Care of Southeast Wisconsin for your senior care needs in Milwaukee, Fox Point, Whitefish Bay, Waukesha, and Franklin, WI. Call (262) 510-0905 to learn more about our senior home care and companion care services.
Source:https://www.aarp.org/caregiving/financial-legal/info-2017/tax-tips-family-caregivers.html
