If you’ve ever had to care for a sick, elderly or disabled person, you know it can be difficult financially as well as emotionally. Many caregivers sacrifice financially, and some delay retirement in order to help their loved ones.
Luckily, there are three key federal income tax breaks available to help lighten the financial burden on caregivers. Here are some tips to help take advantage of them:
Tip #1: Use the new “family” credit
The Tax Cuts and Jobs Act (TCJA) creates a “family” credit for dependents not eligible for the Child Tax Credit. This is a $500 tax credit that you claim for dependents other than children under 17, starting in the 2018. Generally speaking, these are for relatives and others who are members of your household and for whom you provide more than half of their support.
Bonus tip: The TCJA also sharply increased the phaseout threshold for claiming the Child Tax Credit and the new family credit, to $400,000 for married joint filers and $200,000 for individual filers. This extends those credits to many more people, so it’s worth revisiting if you weren’t eligible before.
Tip #2: Use the medical expense deduction
Caregiving can cost a great deal in medical expenses. The good news is that you can claim a deduction for the medical expenses you pay for your dependents.
The TCJA retroactively lowers the threshold for claiming the medical expense deduction for the 2017 and 2018 tax years. This means that you can now deduct any medical expenses higher than 7.5 percent of your adjusted gross income. The threshold rises back to 10 percent in 2019 and following years.
Bonus tip: You can still claim the deduction for medical expenses for a relative even if that person wouldn’t otherwise be classified as a dependent (such as when they don’t live in your household), as long as you provide more than 50 percent of their support. In the case where multiple people together provide more than 50 percent of the support for a relative, you can collectively decide who gets to take the deduction as part of a “multiple support agreement.” This is useful when, for example, siblings share the cost of caring for elderly parents.
Tip #3: Use the Child and Dependent Care Credit
If you are working while caring for a dependent, you may apply for the Child and Dependent Care Credit. Often, this can offset part of the cost of their care. The dependent must be physically or mentally incapable of caring for themselves to qualify. The dependent must also live in your home for more than half the year. Depending on your income, the credit can be applied against 20 percent to 35 percent of qualified expenses, up to a total maximum credit of between $600 and $1,050 for one dependent.
Bonus tip: Both you and your spouse must be working during the year to claim this credit. If your employer provided any dependent support as part of a benefits package, the amount of the credit is reduced by that amount.
If you have any questions about the tax benefits available to you, don’t hesitate to get in touch.