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Discover tax breaks for caregivers that can help you save money. Learn about credits, deductions, and tips for reducing caregiving expenses, with real-life examples and helpful FAQs.
Taking care of a loved one can be a rewarding, but often challenging experience. Whether you're caring for an aging parent, a spouse with a disability, or a family member recovering from illness, being a caregiver can put both emotional and financial strain on your life. Fortunately, there are several tax breaks available that can help ease the financial burden. In this blog, we’ll explore the tax credits, deductions, and strategies that caregivers can take advantage of to potentially save money.
The Child and Dependent Care Credit is one of the most widely known credits for caregivers, but it’s not just for parents. If you're caring for a dependent who cannot care for themselves due to a disability, the credit may apply to you as well.
This credit allows you to deduct a portion of the money you spend on caregiving services. The percentage and amount you can claim depend on your income and the expenses you incur. Eligible expenses might include home care services, daycare, or even certain medical services for the dependent.
What You Need to Know:
Example: Sarah cares for her elderly mother who has dementia. She spends $4,000 on home care services for her mother throughout the year. Based on her income, she can claim 20% of this amount as a tax credit, saving $800.
💡 Tip: Track all caregiving-related expenses throughout the year to ensure you capture every eligible expense. Use a spreadsheet or app to keep organized records.
Caregivers often end up covering out-of-pocket medical expenses for their loved ones. Fortunately, you may be able to deduct some of those costs on your tax return, which can be a big help if you're paying for treatments, medications, or medical equipment.
To qualify for this deduction, your medical expenses must exceed 7.5% of your adjusted gross income (AGI). That means if your AGI is $50,000, you can only deduct the portion of your medical expenses that exceeds $3,750.
What You Need to Know:
Example: John spends $2,000 on prescription medications, $1,000 on medical equipment, and $500 on transportation for his father. His total medical expenses are $3,500. If his AGI is $50,000, he can deduct the portion of his expenses exceeding $3,750, which in this case is $0. However, if he had $4,000 in medical expenses, he could deduct $250.
💡 Tip: Combine all your medical expenses, including travel expenses related to medical care, to maximize your deductions.
If your employer offers a Dependent Care Flexible Spending Account (FSA), this can be a helpful way to pay for caregiving costs with pre-tax dollars. An FSA allows you to set aside a portion of your salary to pay for eligible dependent care expenses. The benefit here is that the money you set aside isn’t taxed, which can reduce your overall tax liability.
What You Need to Know:
Example: Maria works full-time and contributes $5,000 to her Dependent Care FSA. She uses this for her father’s home care, reducing her taxable income by $5,000, potentially saving her hundreds in taxes.
💡 Tip: Set up your FSA contribution at the beginning of the year to ensure you’re maximizing your savings, and spend your funds before the end of the year, as FSA funds often expire.
The Earned Income Tax Credit (EITC) is a tax benefit designed to help low-to-moderate income individuals and families. If you are a caregiver who works and earns a low or moderate income, you may qualify for this credit, even if you don't have children.
The EITC is a refundable credit, meaning that if the credit exceeds the amount of taxes you owe, you could receive a refund. This can be a helpful financial boost for caregivers, especially if you have other caregiving-related expenses.
What You Need to Know:
Example: Lisa works part-time while caring for her disabled brother. She earns $18,000 a year and qualifies for the EITC, resulting in a refund of $1,500.
💡 Tip: Even if you don’t owe taxes, claim the EITC — it’s a refundable credit, so you can receive a refund.
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If you’re caring for a relative who is elderly or has a disability, you may be able to deduct some of the expenses directly related to the care you provide. This includes costs for items like home modifications, special equipment, and even transportation costs if you’re driving the dependent to medical appointments or other necessary destinations.
What You Need to Know:
Example: Tom installs a wheelchair ramp in his home to accommodate his disabled sister. He spends $2,000 on the ramp. After determining the home value increase, he can deduct the cost of the ramp as a medical expense.
💡 Tip: Separate caregiving expenses from personal expenses, especially if you're also paying for other services or modifying your home.
If you’re an employee and have taken leave to care for a family member, you might qualify for the Family and Medical Leave Tax Credit. This credit was expanded in the wake of the COVID-19 pandemic and is still available for eligible workers. The credit provides employers with a tax break for offering paid leave to employees who are taking time off to care for a family member with a serious medical condition.
What You Need to Know:
Example: Emily takes 10 days off to care for her mother after surgery. Her employer offers paid medical leave and applies for the tax credit, saving the company money on the paid leave.
💡 Tip: Check with your employer to see if they offer paid family and medical leave that qualifies for this credit.
If you’ve had to make modifications to your home to accommodate a loved one’s needs, these expenses could be deductible under certain circumstances. This might include adding a wheelchair ramp, installing grab bars, or widening doorways for better access.
What You Need to Know:
Example: Angela spends $5,000 modifying her home to accommodate her father’s wheelchair. The changes increase her home’s value by $2,000, so she can deduct $3,000 of the total modification costs.
💡 Tip: Document both the costs of the modification and the increase in your home's value to ensure you're only deducting the allowable portion.
As a caregiver, you may be able to claim your loved one as a dependent, which could open the door to various tax benefits. To qualify, your dependent must meet certain criteria, including income requirements and the level of support you provide.
What You Need to Know:
Example: Lisa supports her elderly mother by paying for most of her living expenses. Lisa can claim her mother as a dependent, which qualifies her for additional tax credits and deductions.
💡 Tip: Keep a clear record of financial support you provide for your loved one, including any contributions to housing, food, or medical expenses.
Being a caregiver is a demanding role, and it often comes with financial strain. However, by taking advantage of these tax breaks, you can help reduce the financial burden and ease some of the stress associated with caregiving. Before you file your taxes, make sure to consult a tax professional to determine which breaks you qualify for and how you can maximize your savings.
Caregiving is a labor of love, but with these tax tips, you don’t have to face it alone.
Yes, you can still claim caregiving expenses if your loved one lives elsewhere, as long as you meet the requirements for providing financial support and the care is necessary..
You must have earned income and pay for caregiving services that allow you to work. Your dependent must also be physically or mentally incapable of self-care.
If your employer doesn’t offer an FSA, you can explore other options like the Child and Dependent Care Credit or consider setting up a Health Savings Account (HSA) if eligible.
No, you can only deduct the portion of the cost that exceeds the increase in the property’s value. Keep records to ensure you calculate the correct deduction.
Yes! You can qualify for the EITC even without children, as long as you meet income requirements and are providing care for a dependent.
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This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.
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