Medical Expense Deductions
For dependents with medical expenses that have not been reimbursed by an insurance plan, deductions may be available. Specifically, medical expense deductions are available for qualifying medical expenses that exceed 7.5% of a caregiver’s adjusted gross income (AGI). Generally, this deduction is most useful for those who have accumulated significant medical expenses throughout the year that would exceed the standard deduction. Keeping detailed receipts, invoices and other proof of medical expenses is important in determining which method will be best.
Child and Dependent Care Credit
Another potential credit to explore as a caregiver is the child and dependent care credit (CDCC). This credit is available to caregivers who pay for childcare for a child who is under the age of 13 in the United States. It is also available to those who pay for care for a dependent adult.
Examples of childcare expenses that may qualify for this credit include babysitters and nannies, as well as daycare, camps and before/after-school programs.
The amount that can be claimed with this credit depends on a number of factors, including adjusted gross income and the number of dependents living in the household. Still, caregivers can claim up to a maximum of $6,000 per year for two or more dependents.
Child Tax Credit
Those with children or other dependents under the age of 17 may also qualify for the child tax credit (CTC), which provides a credit of up to $2,000 for each eligible dependent when the adjusted gross household income is less than $200,000 (for individuals) or $400,000 (for married couples filing jointly).
Even for those with AGIs exceeding these amounts, child tax credits may still be available—although at an adjusted amount. To claim this credit, it is worth noting that qualifying dependents must be the caregiver’s natural or adopted children, grandchildren, stepchildren or foster children. Likewise, qualifying dependents must live with the caregiver claiming the credit for more than half of the tax year to be eligible.
Dependent Tax Credit
For those caring for dependents that do not meet the eligibility criteria for the child tax credit, the dependent tax credit (DTC) is another option worth exploring. This credit provides up to $500 to caregivers who support dependents above the age of 17, even if they are not related.
In line with the requirements for the CTC, this credit is available to individuals who make no more than $200,000 per year or married couples filing jointly who make no more than $400,000 per year. It is also worth noting that the DTC cannot be claimed for dependents who have already qualified under the child tax credit.
Flexible Spending and Health Savings Accounts
Both flexible spending accounts (FSAs) and health savings accounts (HSAs) can be used to a tax advantage for those who are caring for dependents. FSAs, for example, allow caregivers to use pretax contributions to pay for healthcare costs not just for dependents, but for other members of the household as well.
HSAs are similar in that they allow caregivers to contribute pretax dollars under a high-deductible health insurance plan. These contributions can earn interest in a savings account and be used to cover a wide range of medical expenses and even some basic healthcare purchases (such as wheelchairs, hearing aids and other devices).
How to Claim Tax Incentives as a Caregiver
These are just some of the many tax credits, deductions and other incentives for which caregivers may be eligible. By taking advantage of these incentives, it is possible for caregivers to keep some of their hard-earned money in their own pockets while continuing to provide the best possible care to their loved ones.
For additional guidance or resources when it comes to claiming tax incentives as a caregiver, be sure to consult with a financial advisor or tax professional. This way, caregivers can maximize their tax incentives without leaving any of their money on the table.
Contact Frankel to learn more about how we can support you and your business at www.frankel.cpa or call us at (402) 469-9100.
