Tax Credits for Caregivers

Tax season is rapidly approaching, and with it comes an opportunity for family caregivers to take advantage of some much-needed tax breaks. On December 23, 2010, The Wall Street Journal’s SmartMoney Blog took a look at a few of the tax breaks available to the 62 million Americans caring for an aging spouse or loved one during the 2011 tax season.  Tax breaks for caregivers

To qualify for most tax credits, a caregiver (and recipient) must meet certain eligibility criteria. In some cases, a caregiver may take a “qualifying relative exemption” of up to $3,650, but the following criteria must be met: The spouse or relative being cared for must reside with the caregiver year-round (or meet IRS relative standards), and the caregiver must provide more than half of the person’s total support throughout the year. Further, it cannot be a person the caregiver claims as a dependent child, and the individual receiving care must have a gross income less than $3,650.

Like your own medical expenses, medical expenses incrued on behalf of another person qualify as a deduction, provided that the caregiver provides more than half of the recipient’s support during the year and the total amount of expenses is at least 7.5% of gross annual income. In order to qualify for this deduction, a multiple support agreement must be in place designating the person who will be claiming the recipient as a dependent (IRS Form 2120).

Some families find it difficult to meet the 7.5% threshold; however, long-term care insurance premiums do qualify in many cases. Out-of-pocket fees for assisted living, nursing homes, home senior care, adult day care and the like are also eligible, provided the facility or service provider is licensed. For a list of other qualifying expenses, see IRS Publication 503.

A few state-specific deductions are also available, according to the SmartMoney Blog. Twenty states offer caregivers the ability to deduct a portion of what was claimed against federal income tax on state income taxes.

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