Caring for a loved one is difficult and time consuming enough, without even factoring in the financial responsibilities involved. Fortunately, the IRS - as well as a few dozen state tax agencies - offer a handful of credits and deductions to help those that provide care to a dependent.
1. Claiming a Dependent
In most cases, caregivers can benefit from claiming the person they care for as a dependent. Just remember, you cannot claim an individual as your dependent unless you are providing over half of their support for the year of which you are filing. Additionally the dependent must be either related to you or have lived with you for a full calendar year.
2. Dependent Care Credit
Since providing care to an elderly relative or permanently disabled friend is more than a full time job, caregivers will often need to hire someone to assist them with the duties. Fortunately, the dependent care credit will allow you to deduct up to 35% of your expenses for hiring such help. Check out IRS Publication 503 for a full run down on the credit, and qualifying factors.
3. Deduction Qualifying Criteria
The person whom you are giving care to will need to meet certain criteria in order for you take medical expense deductions on their behalf. In most situations you will need to be related to the individual or they will need to be a permanent member of your household, meaning they have lived with you for at least a calendar year. The dependent will need to be a U.S. citizen, and most importantly you will need to have provided more than half of that person's total support for the tax year. If you are not the only person providing a majority of the care then a multiple support agreement will be necessary.
4. Multiple Support Agreement
In some cases, more than one person is offering assistance to an individual, which can cause some confusion when tax time rolls around. As a partial solution, the IRS created the multiple support agreement. By filling out IRS Form 2120 - a multiple support declaration - one person in a group of two or more will be allowed to claim the individual in need of care as a dependent (even if they are not the majority care provider), and take the allowable exemptions. This type of arrangement is especially helpful for caregivers who do not make enough money to provide care to a dependent, as this type of situation can raise a red flag in the eyes of the IRS.
5. State Deductions and Credits
In addition to Federal tax advantages, you may be lucky enough to live in a state that offers incentives for caregivers. There are over twenty different states that do offer some type of caregiver tax advantages, so be sure to check your state's tax agency or a qualified local tax professional to make sure you take advantage of all the credits and deductions available.
6. Home Modifications
If you had to make modifications to your home in order to accommodate special conditions or disabilities, these may be deductible as medical expenses. Allowable expenses include, but are not limited to: a ramp leading to your door, grab bars in the tub or shower, handrails in hallways or stairs, or special doorknobs for easy access.
7. Reimbursement Accounts
Some employers in the U.S offer health reimbursement accounts (HRA's) that are IRS-sanctioned programs allowing business owners to reimburse participating employee's medical expenses. The point of these accounts is to offset healthcare costs and HRA's can be especially helpful for caregivers since they typically cover spouses and dependents. If you are a wage-earning employee then it might be a good idea to talk to your human resources department to see if the company you work for offers an HRA program.
8. In Home Assistance
If you do need to hire in home assistance then you will want to make sure that you are in full tax compliance. If you can find a part time nursing program, then you will only need to worry about the dependent care credit. However, if you hire an individual to provide in home assistance then you will be required to deal with the paperwork and taxes associated with hiring employees. Meaning you will need to report their earnings to various government agencies, and pay employment taxes.
1. Claiming a Dependent
In most cases, caregivers can benefit from claiming the person they care for as a dependent. Just remember, you cannot claim an individual as your dependent unless you are providing over half of their support for the year of which you are filing. Additionally the dependent must be either related to you or have lived with you for a full calendar year.
2. Dependent Care Credit
Since providing care to an elderly relative or permanently disabled friend is more than a full time job, caregivers will often need to hire someone to assist them with the duties. Fortunately, the dependent care credit will allow you to deduct up to 35% of your expenses for hiring such help. Check out IRS Publication 503 for a full run down on the credit, and qualifying factors.
3. Deduction Qualifying Criteria
The person whom you are giving care to will need to meet certain criteria in order for you take medical expense deductions on their behalf. In most situations you will need to be related to the individual or they will need to be a permanent member of your household, meaning they have lived with you for at least a calendar year. The dependent will need to be a U.S. citizen, and most importantly you will need to have provided more than half of that person's total support for the tax year. If you are not the only person providing a majority of the care then a multiple support agreement will be necessary.
4. Multiple Support Agreement
In some cases, more than one person is offering assistance to an individual, which can cause some confusion when tax time rolls around. As a partial solution, the IRS created the multiple support agreement. By filling out IRS Form 2120 - a multiple support declaration - one person in a group of two or more will be allowed to claim the individual in need of care as a dependent (even if they are not the majority care provider), and take the allowable exemptions. This type of arrangement is especially helpful for caregivers who do not make enough money to provide care to a dependent, as this type of situation can raise a red flag in the eyes of the IRS.
5. State Deductions and Credits
In addition to Federal tax advantages, you may be lucky enough to live in a state that offers incentives for caregivers. There are over twenty different states that do offer some type of caregiver tax advantages, so be sure to check your state's tax agency or a qualified local tax professional to make sure you take advantage of all the credits and deductions available.
6. Home Modifications
If you had to make modifications to your home in order to accommodate special conditions or disabilities, these may be deductible as medical expenses. Allowable expenses include, but are not limited to: a ramp leading to your door, grab bars in the tub or shower, handrails in hallways or stairs, or special doorknobs for easy access.
7. Reimbursement Accounts
Some employers in the U.S offer health reimbursement accounts (HRA's) that are IRS-sanctioned programs allowing business owners to reimburse participating employee's medical expenses. The point of these accounts is to offset healthcare costs and HRA's can be especially helpful for caregivers since they typically cover spouses and dependents. If you are a wage-earning employee then it might be a good idea to talk to your human resources department to see if the company you work for offers an HRA program.
8. In Home Assistance
If you do need to hire in home assistance then you will want to make sure that you are in full tax compliance. If you can find a part time nursing program, then you will only need to worry about the dependent care credit. However, if you hire an individual to provide in home assistance then you will be required to deal with the paperwork and taxes associated with hiring employees. Meaning you will need to report their earnings to various government agencies, and pay employment taxes.