As a caregiver, you may qualify for a few tax breaks that can save you money, lower your tax bill, and provide some financial relief. Here are some steps you may consider when you file your next tax return.
1. Tax credit for other dependents
The IRS gives a Child Tax Credit for young dependents under age 17. But for dependents over age 17 or who do not otherwise qualify for the CTC, the tax credit for other dependents is worth $500 per qualified individual. Non-U.S. citizens can qualify for the credit only if they are U.S. resident aliens. It’s a nonrefundable credit, so you can apply that amount to your tax bill (if you have one).
To claim your parent or relative as a dependent, the following must be true:
- You provided more than half of their financial support during the current tax year, and
- They must not have earned more than the gross income limit for the specific tax year (this amount changes every year)
The credit begins to phase out based on your adjusted gross income (AGI):
- Single filers: Phaseout begins at $200,000
- Married filing jointly: Phaseout begins at $400,000
If your income exceeds these thresholds, the amount of the credit is gradually reduced until it phases out completely.
Note: Your social security benefits may be counted in your gross income.
2. Medical expense deduction
If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct the medical and dental expenses you paid for yourself, your spouse, and your dependents.
Remember, medical expenses must be more than 10 percent of your adjusted gross income, or AGI (7.5 percent of your AGI if you or your spouse is age 65 or older). You can still claim the deduction even if the person you are caring for did not qualify as a dependent due to filing a joint return or having too much income.
For example: If you pay for part of your parent’s medical expenses, you may be able to deduct these medical expenses on your tax return if your parent was your dependent (see criteria above), but not if
- He or she earned $4,200 or more in taxable income
- He or she filed jointly
- You are claimed as a dependent on someone else’s tax return
3. Dependent Care Credit
Do you pay someone to care for your parent or relative while you work? You may be eligible for the Dependent Care Credit on your tax return. The person you are caring for must be physically or mentally incapable of self-care for them to qualify. For tax year 2024, the credit is refundable and worth up to $3,000 if you paid for the care of one dependent or up to $6,000 if you paid for two dependents.
4. Head of household filing status
As a caregiver for an elderly parent, you may be able to choose head of household as your filing status. The benefits of filing as head of household include a larger standard deduction and higher income thresholds for other credits and deductions. For tax year 2024:
- Head of Household filers receive a standard deduction of $21,900.
- Single filers receive a standard deduction of $14,600
That’s a $7,300 difference, which can substantially reduce your taxable income. In other words, by qualifying for and choosing the head of household filing status, you could end up with a bigger tax refund. The conditions for filing as HoH are as follows:
- You must not be married
- You are responsible for more than 50 percent of the cost of maintaining the home for your parent (e.g. buying food, clothing, and other necessary items for your parent) during the year
Note: Your parent, as your dependent, is not required to live with you for you to be considered head of household.
5. Dependent Care Flexible Spending Accounts
Caregivers can take advantage of a Dependent Care Flexible Spending Account (DCFSA) to help manage the costs of caring for a dependent. A DCFSA allows you to set aside pre-tax dollars from your paycheck, up to $5,000, to pay for eligible care expenses like adult daycare or in-home care services. Because FSA money is deducted before taxes, it reduces your taxable income, which can lead to significant tax savings. This benefit is especially helpful for working caregivers, as it helps offset the expenses of providing necessary care while maintaining employment.
