If you’ve ever had to care for an ill, aged, or handicapped someone, you know how challenging it can be both financially and emotionally.
According to a recent survey, many custodians are compelled to make financial compromises, such as postponing retirement, in order to aid their loved ones.
Fortunately, three major federal income tax credits are available to help carers reduce their financial burden.
Here are some pointers to help you make the most of them:
Make use of the “family” credit.
You can claim a $500 tax credit for each dependant other than children under the age of 17.
This credit is often available to relatives and others who are members of your home and get more than half of their support from you. The credit begins to phase out at $400,000 for married joint filers and $200,000 for individual filers
Take advantage of the medical expense deduction.
Medical expenditures are frequently associated with caregiving.
The good news is that you can deduct the medical expenditures paid for your dependents.
During the 2022 and 2023 tax years, the threshold for claiming the medical expenditure deduction is 7.5 percent, which means you can deduct any medical expenses that exceed 7.5 percent of your adjusted gross income.
Helpful hint: You can still deduct medical expenditures for a relative even if they aren’t otherwise categorized as a dependent (for example, if they don’t live in your home), as long as you give more than half of their support.
As part of a multiple support agreement, you can collectively select who gets to claim the deduction if numerous persons provide more than 50% of the support for a relative.
This is important when siblings, for example, split the cost of caring for elderly parents.
Tip #3: Take advantage of the Child and Dependent Care Credit.
If you work while caring for a dependent, you may be eligible to claim the Child and Dependent Care Credit to defray some of the costs of their care.
The dependant must be physically or mentally incapable of caring for themselves and must reside in the same residence as you for more than half the year.
Depending on your income, you can apply the credit to 20% to 35% of eligible costs, up to a total credit of $600 to $1,050 for one dependent.
Extra tip: To be eligible for this credit, both you and your spouse must be working during the year.
The amount of the credit is lowered if your employer offered any dependant support as part of a benefits package.