It’s that time of year when your mailbox starts to overflow with W-2s and other tax statements. And if you’re a caregiver for a senior, things can be even more complicated as you try to sort out what you can and can’t claim on your own taxes.
Unfortunately, many caregivers miss out on deductions and credits they can claim based on their actions throughout the year as a caregiver.
“The reality is that this is something that people just don’t know about,” said Jo Willetts, director of tax resources for tax preparer Jackson Hewitt.
The key to claiming these benefits lies in keeping good records and knowing how much you’re spending to take care of your loved one.
Other Dependent Credit
The Other Dependent Credit allows you to claim your loved one as a dependent on your taxes, giving you a credit of up to $500, depending on your income. Caregivers sometimes miss out on this credit because they assume their loved one has to live with them to qualify, but that isn’t the case.
“They have to have a social security number,” Willetts said. “If the taxpayer makes less than $4,300 in taxable income, and you’re providing the cost of everything else or more than half the costs of whatever it is, then that makes them your dependent. They don’t necessarily have to live with the relative. The question is who’s paying more than half of those costs.”
If more than one taxpayer shares the cost of caring for a loved one, and that shared cost adds up to more than 50% of the loved one’s expenses, the caregivers can share the dependent credit. However, only one person can claim the credit each year.
For example, a brother and sister may share the caregiving duties and expenses for their parents. If those combined costs add up to more than 50% of their parents’ expenses – and both the brother and sister contributed at least 20% of those expenses – either of them can claim the dependent credit in a given year. The sister could claim the credit one year, and the brother could claim it the next year. However, both could not claim the credit in the same year.
Child & Dependent Care Credit
Another option for caregivers is the Child & Dependent Care Credit. Most people think about this credit in terms of child day care, but if your loved one attends a senior care facility during the day or has in-home care, you may be eligible for the Child & Dependent Care Credit.
You can benefit from this credit if you claim your loved one as a dependent on your taxes or if you would be eligible to claim them if their income did not exceed the $4,300-a-year requirement. Essentially, if your loved one receives some type of institutional or in-home care because their medical needs make it impossible for them to be alone – and you’re responsible for more than 50% of all their expenses – you can claim the Child & Dependent Care Credit.
“As long as they are there because of their needs – even if it’s something as simple as they need medication every four hours and can’t be relied on to take it themselves – then you can take the cost of that program as a credit for day care,” Willetts said.
The full Child & Dependent Credit of up to $4,000 is available to anyone with an adjusted gross income of $150,000 or less. A partial credit is available up to an adjusted gross income of $438,000. To claim the credit, you’ll need the name, address and tax identification number of the person or company that provided the care.
Medical expenses deduction
Another option for caregivers is to deduct your loved one’s medical expenses on your taxes. If your loved one qualifies as a dependent, you can deduct some of their medical expenses.
Medical expenses include everything from insurance premiums to prescription and over-the-counter medication to medical care, as long as you’re paying for them.
“Medical expenses above 7.5% of adjusted gross income are deductible,” Willetts said.
For example, if your loved one had $1,000 of medical expenses that you paid for, then you could deduct $250 of that expense.
To keep track of medical expenses throughout the year, Willetts suggests joining the loyalty club at the pharmacy you use for your loved one’s medical purchases. Having an account often allows you to access a list of your purchases for the past year, which means you don’t have to worry about keeping track of all of the receipts. You can also ask doctors and insurance companies for a printed list of expenses each year.
“It makes your life so much simpler when it comes to the end of the year,” she said.
Keep good records
Whether you can take advantage of all these tax options or just one of them, it’s important to keep good records.
“Keep track of your expenses, for sure,” Willetts said. “Keep track of your senior relative’s expenses. You want to be able to quickly and easily identify that you’re providing more than half of their support.”
If you’re not sure if you qualify for these credits and deductions, take some time to sit down and figure out who’s paying for what when it comes to your loved one’s expenses. Understand just how much of your money is going toward their care so you don’t miss out on these tax credits and deductions designed to lower a caregiver’s tax burden.
And mark your calendar for Monday, April 18, 2022—the deadline to file taxes for 2021!