Tax Tips for Caregivers

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By Rich O’Boyle
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Two important tax benefits are available to caregivers: The ability to lump your dependent loved one’s medical expenses in with yours (and potentially claim a deduction for them), and the Child and Dependent Care Credit for costs associated with having someone provide care to your loved one who lives with you. Individual states may have additional tax benefits. Please consult your state’s taxing authority for more details.

Caregiving expenses may be combined with your personal medical and dental expenses on your annual efile for the year. You may be able to deduct expenses associated with helping with activities of daily living such as toileting, bathing and dressing if they add up to 10% or more of your adjusted gross income.

As a caregiver, you should meticulously keep track of all your personal medical expenses as well as those associated with caring for your loved one. Review Publication 502 from the IRS which describes in detail which medical expenses are deductible and keep it handy with your receipts. You might be surprised to learn that you can take deductions for home modifications, such as a ramp for a wheelchair; long-term care insurance premiums; travel expenses to and from doctor’s appointments; and other little-known items.
Below are the top 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.

  1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
  2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
  3. You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
  4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
  5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  6. The qualifying person must have lived with you for more than half of 2009. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
  7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
  8. For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
  9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
  10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer's Tax Guide.

Tax laws change frequently and this article is not intended to substitute for the advice of a licensed professional, so please consult an accountant or attorney when filing your taxes.

Links:
The Internal Revenue Service at http://www.irs.gov
IRS Tax Tip 2010-46: Top Ten Facts About the Child and Dependent Care Credit
Publication 502, Medical and Dental Expenses
Publication 503, Child and Dependent Care Expenses
Form W-10, Dependent Care Provider’s Identification and Certification
Form 2441, Child and Dependent Care Expenses
Tax Topic 602
You may download these free forms and publications from IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).


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