Family Caregivers & Tax Season: What You Need to Know
It is that time of year again. Time to gather up your W-2s, 1099s, and donation receipts as you prepare to file your tax returns. If you’re providing care and support for a loved one – perhaps an elderly parent or an adult child with a disability, there are additional factors you’ll want to consider before sending everything off to the IRS. Here are some of the common questions we’ve heard from family members acting as caregivers.
1. Can I claim an adult relative as my dependent?
In order for you to claim a Credit for Other Dependents on your taxes, the individual you support needs to meet a number of requirements. For starters, they cannot have earned more than $4,400 in gross income (as of the 2022 tax year) and you must provide for more than 50% of their living expenses – including clothing, food, housing, medical care, transportation and other necessities. This interactive tool from the IRS can help you determine if someone qualifies as a dependent for your returns.
Keep in mind that if multiple family members are providing for a relative, only one person can claim the dependent on their taxes each year, although others may still be able to deduct qualifying expenses.
2. What other deductions or credits could I be eligible for?
According to the AARP, family caregivers spend more than $7,200 a year on out-of-pocket costs – with housing and medical care topping the list of expenses. If you’re spending a lot to cover costs of care, you’ll want to be aware of these tax credits/deductions that could help offset these expenditures.
Child and Dependent Care Credit: You may be able to claim this credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing jointly) to work or actively look for work. The amount of this credit is based on a number of factors, including adjusted gross income (AGI), and can be up to $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals.
Medical expense deductions: You may be able to deduct the money you spent to cover your loved one’s unreimbursed medical costs. To be eligible, the qualified medical expenses of everyone claimed on your taxes must total more than 7.5% of your AGI income, and you must choose to itemize your returns (and not take the standard deduction). Examples of qualifying expenses include:
- Insurance premiums, copays, and deductibles;
- Prescription drugs and insulin;
- Surgery and x-rays;
- Dentures, eyeglasses, hearing aids, wheelchairs, and other medical devices;
- Improvements to your home or vehicle to accommodate a disability; and
- Transportation costs to/from medical care;
3. Does my loved one need to file their own tax return?
Whether or not someone needs to file a tax return is dependent on a number of factors. The first thing to consider are gross income thresholds which vary based on age and filing status. For example, adults over the age of 65 filing as single need to submit a return if their gross income was more than $14,700 in 2022.
It’s also important to note that even if someone isn’t working, they may still have income to account for if they:
- Take distributions from a tax-deferred retirement account (e.g. traditional IRA, 401(k), pension plan etc.);
- Accrue interest or dividends on other investments; or
- Take distributions from a trust (note that trust funds are taxed differently depending on their structure and other factors).
Additionally, some individuals are required to pay federal income taxes on their Social Security benefits. According to the Social Security Administration (SAA), this usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, and other sources listed above).
When it comes to filing your taxes, there’s a lot to consider – especially when you’re acting as a caregiver. We hope that this post helps you feel a bit more prepared on issues to bring up with your tax preparer or advisor. We always recommend seeking the guidance of a tax attorney or accountant that is experienced in eldercare, special needs planning, and/or caregiver tax prep.
Disclaimer: This article is not intended to provide investment, tax, or legal advice. Before making decisions involving investing, legal, tax or accounting concerns, you should consult appropriate professionals regarding your speciﬁc situation. The AARP offers free assistance and tax tips for seniors through its Tax-Aide program. You can also find a wealth of information from the IRS for adults with disabilities, seniors, and their caregivers.