Tax Breaks for Relatives in your Care Besides Your Children
While it is well-known that you receive certain tax credits and deductions for the care of your children, there are additional tax credits and deductions for other relatives in your care, such as your aging parents, uncles or aunts.
If a parent lives with you and you’re paying more than half of their living expenses (i.e. housing, food, utilities, health care, repairs, clothing, travel and other necessities), and the parent has annual earnings of less than $4,300 (non-wage income), you may claim them as a dependent and get a nonrefundable tax credit of up to $500. The same rule would apply for other relatives who are not your natural children, children you have adopted or children under a guardianship arrangement.
Furthermore, if you claim this relative as a dependent and you help pay their medical, dental and/or long-term care expenses, and weren’t reimbursed by insurance, you can deduct the expenses that exceed 7.5 percent of your adjusted gross income (AGI), assuming you itemize deductions on your return. If the standard deduction is greater than all your itemized deductions (including the amount for un-reimbursed medical expenses), you would not be able to deduct these medical expenses on your return. If you have a Health Savings Account (HSA) to which you contribute your pre-tax earnings (these contributions are excluded from taxation and thus reduce your taxable income), you may use the HSA to pay for the dependent’s un-reimbursed medical expenses, the same way you use it for your own, spouse’s or childrens’ un-reimbursed medical expenses. Bear in mind that any medical expenses paid for from an HSA cannot be deducted.
If you’re paying for in-home care or adult day care for a parent or other elderly relative so you are free to work, you might qualify for the Dependent Care Tax Credit which can be worth as much as $4,000. The relative must have been physically or mentally incapable of self-care and must have lived with you for more than six months.
For this and other tax saving or planning opportunities, consult with your tax professional today.