Caregiving

Tax Breaks for Caregivers

Uncle Sam may offer a helping hand if you’re taking care of a relative.

If you provide more than 50% of the relative’s support and she has a gross income (not counting tax-free Social Security benefits) of less than $4,000 in 2015, you can claim her as a dependent on your tax return. Your relative does not have to live with you to qualify.

The exemption will knock $4,000 off your taxable income (restrictions apply if your income exceeds $258,250, or $309,900 for married couples filing jointly). You can include medical expenses paid for a dependent (or someone who would qualify if not for the income test) when determining if you can write off medical expenses on your return. You can deduct such expenses to the extent they exceed 10% of your adjusted gross income (7.5% if you or your spouse is 65 or older). Allowable expenses include the cost of nursing care at your home or a care facility and of modifications to your home, such as installing grab bars and handrails, to the extent the cost exceeds any added value to your home. For the list of all eligible expenses, see IRS Publication 502, at www.irs.gov.

If you pay someone to care for your relative while you work or look for work, you may be able to claim the child and dependent care credit on your federal tax return. The credit can knock $600 to $1,050 off your tax bill for the year. Home care qualifies for both the medical expense deduction and the dependent care credit, but you can’t apply the same expenses to both; it’s usually best to count them first toward the dependent care credit.

If you have flexible benefit plans at work that allow you to use pretax income to cover medical or dependent care costs, you can tap those accounts for reimbursement for qualified expenses paid for a dependent parent or other eligible person. You’ll generally get a bigger break by using the flexible spending account rather than the dependent care credit (see “Ask Kim,” at kiplinger.com/links/dependentcare).

Hiring someone to provide care in your home or the care recipient’s home could trigger requirements that you pay Social Security, Medicare and unemployment taxes for the employee. This requirement generally does not apply if the paid caregiver is a family member or an employee of an agency.

Most Popular

How Big of a Threat Does Inflation Pose to Your Retirement?
retirement

How Big of a Threat Does Inflation Pose to Your Retirement?

You might be surprised how much inflation can nibble away at your retirement nest egg over time if you aren’t prepared.
October 3, 2021
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
October 4, 2021
4 Big Retirement Blunders (and How to Avoid Them)
retirement

4 Big Retirement Blunders (and How to Avoid Them)

It’s too bad, but financial advisers see these four mistakes all the time. Don’t fall into the same traps.
October 6, 2021

Recommended

10 Year-End Moves to Lower Your 2021 Tax Bill
taxes

10 Year-End Moves to Lower Your 2021 Tax Bill

What you do between now and the end of the year can have a significant impact on how much tax you have to pay next April.
October 19, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
October 19, 2021
10 States With the Highest Sales Taxes
state tax

10 States With the Highest Sales Taxes

When both state and local taxes are considered, you'll pay more sales tax when shopping in these states.
October 19, 2021
9 States with No Income Tax
Tax Breaks

9 States with No Income Tax

If you choose to live in these states, every penny you earn is safe from state income tax (although one state taxes some dividends and interest). But …
October 19, 2021