Have you spent some of the past year as a family caregiver? You likely knew it would take much of your time, but perhaps not so much of your money. According to the AARP, the average family caregiver spends about $7,200 a year on household, medical, and other costs related to the care of a loved one. (2021) Good news! If you’ve been taking care of an elderly parent, grandparent, or dear friend – you may be eligible for these 4 tax breaks:
1. Medical Expenses
If you are providing over half of the support for an elderly relative, regardless of if they are your dependent or not, and you itemize deductions on your tax return, you can include any medical expenses you incur for the individual, along with your own, when determining your medical deduction. This can sometimes be called a “medical dependent.” As stated above, an individual qualifies as a medical dependent if you provide over 50% of his or her support, which includes medical costs. This test is less stringent than that used to determine whether an individual is your “dependent,” which is discussed below.
There are a wide range of deductible medical expenses from eyeglasses to physical therapy and much more. Some of the more common expenses include:
- Doctor Appointments
- Chiropractor Appointments
- Hospital Care
In addition to some of the common expenses listed above, the costs of qualified long-term care services required by a chronically ill individual and eligible long-term care insurance premiums are included in the definition of deductible medical expenses. There is an annual cap on the amount of premiums that can be deducted. The cap is based on age, going as high as $5,640 for 2022 for an individual over 70.
Do keep in mind that medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI) and to the extent that you were not compensated by insurance or otherwise.
2. Filing Status:
If you have been filing as “single” and taking care of an elderly relative, you may qualify for “head of household” status by virtue of the individual you’re caring for. A head of household (HOH) filer allows for a higher standard deduction and lower tax rates. You can claim this status if:
- The person you’re caring for lives in your household (see exception below),
- You cover more than half the household costs,
- The person qualifies as your “dependent,” and
- The person is a relative.
3. Claim Your Loved One as a Dependent
Taxpayers have long been able to claim a tax credit for children up to age 16. Unlike a deduction, which lowers your taxable income, a tax credit directly reduces your tax bill. The 2017 federal tax law expanded the Child Tax Credit (CTC) to allow taxpayers to claim up to $500 as a nonrefundable “Credit for Other Dependents,” including elderly parents.
Under this provision, in effect through the 2025 tax year, the IRS allows family caregivers to claim some individuals related by adoption, blood or marriage — and even some friends — as “other dependents” on their federal tax return if both parties meet IRS requirements.
- You must provide more than 50% of the individual’s support,
- The individual must be related, or if not related, then lived with you for the full year,
- The individual must not have gross income more than $4,400 for 2022 (gross income does not include certain social security benefits),
- The individual cannot be claimed as a dependent on someone else’s 2022 return,
- The individual cannot file a joint return for the year, and
- The individual must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
4. Dependent Care Credit
If the cared-for individual qualifies as your dependent, lives with you, and physically or mentally can’t take care of him- or herself, you may qualify for the dependent care credit for costs you incur for the individual’s care to enable you and your spouse to go to work. The amount of the credit is based on a percentage of the dependent care expense, up to $3,000 per one dependent for 2022.
Talk to us about caretaker credits, or use the IRS interactive tool to determine whether you’re eligible for these deductions click here.