Many family members sacrifice in order to help take care of a loved one. According to Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC, LLC, many leave their jobs or reduce to part-time hours in order to keep their loved one at home. They may invite the family member to move into their home, or the caregiver may move in with their relative. The good news is family caregivers who support loved ones are eligible for several tax credits and deductions. It’s not just for taking care of parents; other relatives may be covered as well, notes a recent article “If you are a caregiver of elderly parent, you may be eligible for tax breaks” from The Oklahoman. The IRS has different options and certain requirements must be met. Here is some basic information about how the caregiver tax credit works.
When a dependent mother lives with an adult child who pays for more than half of her living expenses—food, housing, utilities, health care, repairs, clothing, travel, and similar necessities—and if the mother’s gross income is under $4,300—the child can claim the mother as a dependent. The tax credit, which is nonrefundable, can be as much as $500.
When siblings are cooperative and everyone contributes to mom’s expenses, only one can claim the mother as a dependent. It has to be the adult child who pays for at least 10% of support costs. The IRS calls this a “multiple support agreement.” There’s information on the IRS website to help you figure out if you qualify for a “Credit for Other Dependents.”
Medical deductions are another credit. If an adult child claims a parent as a dependent and also pays medical, dental, and/or long-term expenses that are not reimbursed by insurance, the expenses in excess of more than 7.5% of the adult child’s Adjusted Gross Income (AGI) can be deducted.
For example, if the adult child’s AGI is $80,000, anything after the first $6,000 of the parent’s medical bills—7.5% of the AGI—could be deductible. If the parent’s medical bills were $8,000, $2,000 would be deductible. When calculating the total, include medical expenses for you and your spouse.
AGI thresholds vary by state, so if your state has a lower AGI, you might get a break on state income taxes, even if you do not qualify on federal income taxes.
What about in-home care or adult day care costs? They might also be covered, under the Dependent Care Tax Credit, and could be worth as much as $4,000. To qualify, the dependent parent must have been physically or mentally incapable of taking care of themselves and have lived with you for more than six months.
There is also the possibility of using funds from a Health Savings Account (HSA) or a Flexible Savings Account (FSA) from your employer to pay for a loved one’s medical expenses, as long as she is a qualified dependent. One caveat: if you use the funds from an HSA or FSA to pay for a dependent’s medical costs, you cannot take a tax deduction on the expenses.
An elder law attorney like the ones at Beck, Lenox & Stolzer will be well versed on whether or not the caregiver tax credit works for your situation. Seek professional advice so that you can take full advantage of any credits or benefits you may have earned.
Reference: The Oklahoman (Jan. 25, 2022) “If you are a caregiver of elderly parent, you may be eligible for tax breaks”