Caring for a sick, elderly or disabled person can be challenging both emotionally and financially. You’re already dealing with daily stress. Then there’s the chance that the plans you’ve been making for your future plans will have to change, as well.
A recent study revealed that many caregivers have to make financial sacrifices, such as delaying their retirement, to support their loved ones. Fortunately, there are three federal income tax breaks that caregivers can take advantage of to alleviate their financial burden.
3 Tips for Caregivers to Lower Their Taxes
Every dollar counts, and the more you can save on your annual taxes, the better! Review these opportunities to make sure you aren’t missing out!
1. Utilize the “Family” Credit
This credit provides a $500 tax credit per dependent, as long as that dependent isn’t a child under 17 years old. It typically applies to family members and other individuals who are part of your household, and whom you provide over 50% of their financial support. For joint filers, the credit begins to phase out at $400,000, and for individual filers, it starts at $200,000.
2. Check Your Medical Expense Deduction
When you’re a caregiver, you may have to pay for medical expenses. This can be tricky to manage throughout the year, but you can deduct these expenses from your taxes when it comes time to file.
The medical expense deduction applies to the medical costs you pay for your dependents—not yourself. For the 2022 and 2023 tax years, the threshold for claiming this deduction is 7.5% of your adjusted gross income.
As an added bonus, even if a relative is not classified as a dependent, you can still claim this deduction as long as you provide over 50% of their financial support. If multiple people provide more than 50% of a relative's financial support, a multiple support agreement can help you decide who gets to take the deduction. You’ll just need to coordinate with all parties to avoid a tax issue.
3. Take Advantage of the Child and Dependent Care Credit
If you’re working while caring for a dependent, you may be eligible for the Child and Dependent Care Credit, which can help you offset some of those care costs. To qualify, the dependent must be physically or mentally unable to care for themselves. They also need to live in the same residence as you for over half of the year.
This credit can be applied to 20% to 35% of your qualified care expenses, depending on your income. The maximum credit for this benefit is $600 to $1,050 for a single dependent.
Just note: Both you and your spouse must be employed during the year to claim this credit. What’s more, if you have an employer offering dependent support, then you’ll need to reduce the amount of the credit by that sum.
Want to Review Your Tax Benefits?
As circumstances change from year to year, it’s common to have questions about your potential deductions. NSO & Company is here to help.
Our team is passionate about helping individuals and families lower their tax liability. Let’s make sure you aren’t forgetting to claim any benefits that you’re owed. We specialize in serving clients throughout the Indianapolis area, and can even work with people in other states. Please send us a message to learn more!
