Can a Family Member.receive Compensation for Total Care of a Family Member

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Every bit a family caregiver, you went into the job knowing it would take much of your fourth dimension.

Y'all may not have expected it to take quite so much of your money. The average family caregiver spends about $seven,200 a year on household, medical and other costs related to caring for a loved one.

Fortunately, at that place is some light at the end of the tax twelvemonth: federal revenue enhancement credits and deductions that apply directly or indirectly to caregiving costs. Here are some ways family caregivers potentially can reduce their taxation burden.

Taxation credit for 'other dependents'

Taxpayers have long been able to merits a revenue enhancement credit for children up to age 16. Different a deduction, which lowers your taxable income, a tax credit directly reduces your tax beak. The 2017 federal tax law expanded the Child Tax Credit (CTC) to allow taxpayers to claim up to $500 as a nonrefundable "Credit for Other Dependents," including elderly parents.

Nether this provision, in outcome through the 2025 revenue enhancement year, the Internal Revenue Service allows family caregivers to merits some individuals related by adoption, claret or marriage — and even some friends — every bit "other dependents" on their federal tax return every bit long as both parties meet these IRS requirements:

• Legal residency. Your loved ane is a U.S. denizen, U.Southward. national or legal U.S. resident and has a valid identification number — a Social Security number, Private Taxpayer Identification Number or Adoption Taxpayer Identification Number.
• Income. Your loved one's gross income is not greater than that revenue enhancement year's cutoff amount, which in 2021 is $four,300.
• Dependence on you. Your loved one lives with you and you lot pay more than than 50 percent of that person's living expenses, including clothing, nutrient, lodging, medical and dental care, recreation, transportation and other necessities. Ii or more people tin split these expenses, but only ane can merits the person equally a dependent, and that person must pay at least x percent of the back up costs. This is called a "multiple back up agreement."
• Living arrangements. You may claim a friend, honorary auntie or other unrelated loved i as a dependent, but he or she must take lived with you the entire year.
• Married dependent consideration.You can claim a dependent who is married only if he or she does non file a joint return with their spouse or files a joint return merely to get a refund of income tax withheld and does non merits any other credits or deductions
• Non-dependence. You can claim a dependent but if you are not a dependent of another taxpayer.

The IRS has an interactive tool to help you determine if a dependent qualifies yous for a tax credit.

Tips for filing

• Keep detailed records. For example, create a log to show the dependent lived with you for at least half the year.
• Keep receipts and keep a written log of all related expenses. This record volition ensure yous don't miss whatsoever allowable deductions, and it can serve every bit function of your documentation if yous are audited.
• Exist aware that adding a dependent makes them office of your household, which could have implications in areas such as Medicaid eligibility or the toll of health insurance purchased through the Affordable Intendance Deed marketplace.

Bonus: Caput of household status

If you are a unmarried taxpayer, or married but living apart from your spouse, adding a dependent relative who lives with you could bump you upwards to head of household. The change in status raises your standard deduction for the 2021 tax year to $xviii,800, up from $12,550 if yous are single or married merely filing separately. Think that taking the standard deduction means you can't claim any personal exemptions.

A parent does not demand to live with y'all for you to claim head of household status. Whatever other relative must have lived with y'all for at least one-half of the tax year.

If yous use a multiple back up agreement to claim your dependent, you cannot utilize the dependent to file as a head of household.

Deduct a dependent's medical expense

You tin deduct the money y'all paid to cover your loved one's unreimbursed medical costs if the qualified medical expenses of everyone claimed on your taxes totals more vii.v pct of your adjusted gross income for that year and if your total itemized deductions are more than your standard deduction.

Cheque IRS Publication 502 to see what is and isn't deductible. Here is a sample of acceptable deductions:

• Activities for older people with special needs
  
• Acupuncture
• Adult day care or a home health intendance worker if y'all work outside the house
• Assisted living costs when incurred for medical reasons
• Bandages
• Copayments and deductibles
• Eyeglasses
• Hearing aids
• Home and vehicle modifications needed for safety or mobility
• Insulin
• Concrete therapy
• Prescribed medicines and equipment, such every bit a cane or walker
• Professional health aide costs during respite intendance
• Transportation for medical appointments or services

Not deductible: Items and services that do good the household.

Flexible spending and wellness savings accounts

Flexible spending accounts (FSAs) and health savings accounts (HSAs) take coin from your earnings before taxes are deducted and deposit it in a medical savings plan you can use to pay out-of-pocket health care costs for yourself and dependents.

You may use one of these accounts to pay your dependent's medical bills, copays, insurance deductibles, over-the-counter medical supplies, personal protective equipment and even for some treatments that your insurance doesn't embrace. However, if you pay using an FSA or HSA, you cannot take a tax deduction for that beak as a medical expense.

Child and dependent care credit

Unlike the Kid Tax Credit or Credit for Other Dependents, which confer a revenue enhancement break based on the existence of a qualifying child or other dependent, the Child and Dependent Intendance Credit is based on coin you spend to intendance for that person or people. For the 2021 tax year, you can claim a portion of up to $4,000 in caregiving costs for 1 person and up to $eight,000 for two or more than.

Oddly, given the name, this tax credit does not require that your loved 1 qualify as your dependent in certain circumstances. But in that location are rules for when you tin claim information technology. Amidst them:

• Cohabitation. The person you are claiming the credit for must take lived with yous for at least 6 months during the tax yr.
• Dependency. The person is your dependent or could be except for having gross income higher than the allowed maximum, which is $iv,300 in 2021, or filing a joint revenue enhancement return with a spouse that twelvemonth.
• Incapacity. The person is physically or mentally unable to care for himself or herself.
• Necessity for employment. Yous pay an adult 24-hour interval care program, child care plan or a domicile health worker to assist your loved 1 and so you can go to work or look for work.
• Spousal qualifications. If you are married, your spouse besides must piece of work, be a student or exist disabled for you to qualify for this credit.

If you lot plan to claim any of these credits or deductions, be sure to outline all of your costs and get someone to help you with your taxes, says Lynnette Lee-Villanueva, vice president of AARP Foundation Tax-Aide, a free tax-preparation service staffed by AARP volunteers. Taxation-Aide has more than 5,000 sites nationwide that are open annually during tax flavour and provides an online site locator to find one near you.

This article, originally published December 15, 2017, has been updated to reflect tax laws and policies for the 2021 tax twelvemonth.

Learn More Well-nigh Caregiving

• Getting financial assistance for caregiving is possible
• What caregivers should know nigh managing a loved 1'south money
• How caregivers tin avoid guardianship, conservatorship and probate court

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Source: https://www.aarp.org/caregiving/financial-legal/info-2017/tax-tips-family-caregivers.html

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