I don’t need to tell you how expensive caregiving is.
I won’t claim that tax breaks for caregivers are enough to really lessen the financial squeeze. Every little bit helps, though.
A tax deduction lowers the amount of taxable income you have. If you make $30k a year and have $5k in deductions, you only owe taxes on $25k.
A tax credit reduces the amount of taxes you owe. If you owe $5k in taxes and have a tax credit for $1,200, you will only have to pay $3,800 in taxes.
If you’re self employed, there are other considerations, too.
Who’s a dependent?
Generally to be your dependent, you must provide at least half of their financial support and they need to be either related to you or have lived with you for a full year.
If several family members provide half or more of the support, you must choose which family member will claim them as a dependent. You’ll need to file a mutual support declaration, form 2120. A person can only be claimed as a dependent by a single tax payer.
Not sure if the person you care for is a dependent in the eyes of the IRS? Find out here.
Payments your caree makes to you
If you take care of a family member and they give you money to help with household expenses, you don’t need to pay taxes on this. This is not considered income by the IRS. It does, however, count as support in determining if your family member is a dependent for tax purposes.
If you cash a family member’s social security benefits and use them to pay for their care, you don’t pay income tax on them. It’s still considered their income.
Medical and dental deductions
If you itemize your tax deductions on Schedule A, you can deduct medical expenses for you, your spouse, and your dependents.
How much can you deduct
You can only deduct expenses over the allowable amount. If you’re 32, your AGI is $35,000, and you have $7,510 in medical expenses, here’s how the math would look:
35,000 x .10 = D 7,510 – D = medical expense deduction
35,000 x .10 = 3,500 7,510 – 3,500 = 4,010
You would be able to deduct $4,010 of medical expenses on your taxes.
What can you deduct?
- Payments and co-payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
- Payments for in-hospital or residential care, including the cost of meals and lodging
- Rehabilitation, therapeutic, preventative, and personal care services for people who are chronically ill who need support for ADLs
- The cost of eyeglasses, contact lenses, hearing aids, false teeth, crutches, wheelchairs, and guide dogs
- The cost of prescription drugs and insulin
- Medically necessary home improvements
- Special medical equipment you have installed in your home (must be adjusted based on any increase in your home value)
- Handicap accessible vans or vehicle adaptations
- Payments for transportation to and from medical care appointments (including taxi fare, standard mileage, tolls, and parking)
- Payments made for insurance premiums for policies covering medical and long-term care.
- Medically required food
- The cost of attending medical conferences related to a chronic disease you, your spouse, or dependents have (but not meals and lodging, only admission and transportation)
- Treatment for alcohol and drug addiction and smoking cessation
- The cost of medical weight loss programs if it’s to treat a specific condition diagnosed by your doctor
What can’t you deduct?
- Anything your employer or insurance reimbursed you for
- Funeral expenses
- Over-the-counter medicines
- Health club fees
- Diet food
- Toiletries and cosmetics
- Costs of medical tourism (but the procedure itself is allowed)
- Most cosmetic surgery
- Non-prescription nicotine gum or patches
You can only deduct medical expenses in the tax year they were paid. You can get more specific information from the IRS.
Child and dependent care tax credit
The federal government and more than half of the states provide tax credits for the expense of home care or adult day care. This credit is up to 35% of qualifying expenses, based on your AGI, and is filed on form 2441. You must name the care provider on form W10.
Any money paid to your spouse, the parent of the qualifying person, any of your dependents, or anyone under the age of 19 is not eligible.
You cannot claim this tax credit if you’re married filing separately.
If you pay an individual, you may be required to pay social security, Medicare taxes, and unemployment taxes if you are considered a household employer. You cannot claim expenses for anyone you paid ‘under the table.’
Most states allow you to deduct a percentage of your federal tax credit from your state taxes. Check to see if your state provides a tax credit for dependent care.
If they’re not a dependent
Even if someone isn’t considered your dependent, they can still claim their own medical expenses on their tax return.
Elderly and disabled tax credit
This credit is for people who are elderly or disabled and file their own taxes (not as your dependent). If someone 65+ or who is disabled (and any age) has an AGI lower than the required threshold, they can get the elderly and disabled tax credit. This goes on Schedule R.