Tax Breaks That Help YOU While You Help Your Parents
Over 17 million people in the United States are actively taking care of their elderly parents, according to the Bureau of Labor Statistics. Providing that care is important—but it can be costly. One study concluded that an average family spends $140,000 over time when caring for an elderly family member.
However, an unlikely friend, the IRS, provides four tax breaks that will help with the financial burden of elderly care.
1. The Dependent Tax Credit
If your adjusted gross income is less than $384,000 (for single filers) or $436,300 (for joint filers), you may be able to claim all or a part of a tax credit of $500. If your parent(s) receive(s) more than half of their financial support during the year from you (even if they do not live with you), including food, utilities, health care, repairs, clothing, or travel, you may qualify for the credit.
2. The Child and Dependent Care Credit
If you paid for someone to care for your parent(s) so that you could go to work or seek out employment, you may qualify for a credit that generally runs from 20% to 35% of up to $3,000 of “adult day care” costs. Because this is a credit, it directly reduces your tax bill.
For example, if you qualified for the $3,000 credit and the amount of tax owed was $4,500, the credit would reduce the bill dollar for dollar, resulting in an amount owed of $1,500.
3. Your Employer’s Dependent Care Benefits
Some employers offer dependent care flex spending accounts, or FSAs. But most people do not know that their benefits may include elder care in addition to child care.
If your employee benefits include Dependent Care FSA, you can exclude up to $5,000 that you have your employer deposit into a Dependent Care FSA before it is subject to tax. This means that you have lowered the amount of your income subject to tax and placed money aside to use towards caring for your mom or dad.
However, what is and is not covered under your FSA varies among employers, so you should review your benefits to confirm.
4. The Medical Expenses Deduction
In addition to ordinary necessities, if you are providing more than half of your parent(s)’ financial support for any given year, chances are you paid some of their medical or dental bills and weren’t reimbursed by insurance. Luckily, you may be able to deduct those costs that were not reimbursed.
Generally, you can deduct qualified medical expenses to the extent they exceed 7.5% of your adjusted gross income (AGI).
Say your dependent mom had a $5,500 dental visit and $6,000 in doctor visits and prescriptions—all of which weren’t covered by Medicare. Your AGI is $50,000. You could deduct on your personal tax return the amount spent on your mother’s medical expenses in excess of $3,750—meaning of the $11,500 spent, you could deduct $7,750 of it on your return.
Long term care insurance (within limits) and the cost of medically-necessary nursing home care may also be deducted. For those caring for parents with severe medical issues, the medical expense deduction may significantly fray the financial burden.
If you are interested in seeing if you qualify for any of the discussed tax breaks, give us a call at 904-807-2183.Share