Tax Breaks for Caregivers

People who provide care for an older adult may be entitled to tax breaks that help defray some of the costs of care, including: 

• Some people may be able to claim a care recipient as a dependent and reduce taxable income by $3,650. To be eligible, the care provider must provide more than half of the recipient’s financial support, and the recipient’s gross income must be less than $3,650.
• If several people together provide more than half of the recipient’s income, but no single person meets the test, one person may be designated each year to claim the dependent exemption. That individual must provide at least 10% of the recipient’s financial support.
• If the recipient has more than $3,650 in gross income, a caregiver may still be eligible for a dependent-care credit up to $1,050 if the recipient is physically or mentally unable to care for himself or herself.
• If the caregiver pays for the recipient’s medical or dental expenses and itemizes deductions, the caregiver can subtract medical expenses that exceed 7.5% of the caregiver’s adjusted gross income from the caregiver’s taxable income.
• Single caregivers may also change their filing status to “head of household,” which may increase their standard deduction amount and decrease their tax rate.

For more details on these strategies, see Anne Tergesen, Caregiver Tax Breaks, W.S.J., Feb. 13, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.