What Is the Caregiver Deduction?
- If you're wondering, "what is the caregivers deduction?", you probably want to maximize your tax benefits. Learn which caregiving expenses you can deduct.
Caring for an older loved one can get expensive, and many caregivers spend thousands of dollars on medical expenses and supplies related to their caregiving duties. The answer to the question "what is the caregivers deduction?" isn't simple because the answer can include more than just one thing. Caregiving-related deductions include both deductions for medical expenses and dependent care credits.
How Does a Caregiver Pay Taxes?
Caregivers pay personal income taxes just like any other individual, and a caregiver may claim the person being cared for as a dependent if certain qualifications are met. The different tax deductions and tax credits available for caregivers have different requirements for qualification, so you might qualify for only one type of tax benefit or for all of them.
What Is the Caregivers Deduction?
Before you can answer the question "what is the caregivers deduction?", you have to define the specific legal relationship you have with the person in your care. Determining whether the person qualifies as a dependent is the first step to figuring out if you qualify for tax credits or deductions related to caregiving.
The type of care you are paying for also affects which tax benefits you might get. You can deduct specific medical expenses over a certain cost threshold and get credits for simply claiming someone as a dependent or as a reimbursement of money spent on care while you are working.
What Can Caregivers Deduct?
When it comes to medical expenses, caregivers who itemize their deductions on their tax returns can deduct unreimbursed medical expenses for qualifying dependents. You can only deduct medical expenses that exceed 7.5% of your adjusted gross income, so if you only have a few smaller expenses, those don't qualify. For larger expenses, only the portion over 7.5% of your AGI qualifies.
For this specific type of deduction, you may also be able to include some of the medical expenses of a parent or grandparent who doesn't qualify as a dependent due to income or tax filing status. IRS Publication 502 describes who specifically qualifies for medical deductions and what items are covered.
Some things covered under a medical deduction include:
- Hearing aids
- Home health worker costs
- Physical therapy
- Home medical equipment costs
Who Is Eligible for the Caregiver Tax Credit?
There are two main types of tax credits that caregivers may be able to use.
The Child Tax Credit (CTC) lets caregivers claim up to a $500 tax credit for qualifying dependents other than a child, such as a parent. The person you are claiming must fit specific criteria, but they do not have to be a relative. A family friend or other loved one may fit the criteria for you to claim the caregiver tax credit. Some of the qualifying criteria are:
- The person must have an income under $4,200 per year.
- The person must have lived with you for the entire year.
- The person must be a legal resident of the U.S.
- You must have covered at least 50% of the person's living expenses over the last year, or if you are sharing the financial burden with others, such as other adult children, then you must personally have contributed at least 10% of the total cost.
The Child and Dependent Care Credit gives you a tax credit of $3,000 to reimburse you for money spent on adult day care or an in-home care worker for a qualifying dependent. This credit goes up to $6,000 if you are paying for the care of two or more dependent adults. The rules and qualifications for claiming this credit are different from the Child Tax Credit. The person must have lived with you for 6 months or more of the preceding year and must be deemed physically or mentally incapable of self-care. To claim this credit, you must work, be a student or be disabled, since the credit is designed to pay for care you cannot personally provide. If you are married, your spouse must also meet one of these qualifications.