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Can I deduct care expenses on my taxes?

Learn more about the credits and deductions that can help you reduce what you owe come tax season.

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Tax credits and deductions are important as they allow you to retain more of your hard-earned income. Both can help reduce the amount of income tax you owe. This can result in either a reduced tax bill or an increased tax refund — either way, credits and deductions are designed to save you money. 

Tax credits exist for a huge range of activities, from owning electrical vehicles to investing in your education. These credits are a way for the government to reward taxpayers for specific actions — including caregiving.

Deductions are slightly different from credits; they will help lower the amount of income you report and pay taxes on. Because you pay more tax when you report a higher income, deductions can help lower or even eliminate what you owe. On the other hand, credits directly reduce what you owe in taxes or increase what you get back in your tax refund. Some credits, called refundable credits, can even give you a refund when you don’t owe any tax.

Most of us are taxpayers, yet many people remain unaware that they might be eligible for tax credits and deductions. Fortunately, there are credits and deductions that exist specifically to help caregivers, which we outline below. 

Tax Credits and Deductions for Caregivers 

Aidaly has found three tax benefits that are especially helpful for family caregivers:

  • The Child Tax Credit/Credit for Other Dependents
  • The Child and Dependent Care Credit
  • Medical and Dental Expenses Deductions

Let’s walk through what each credit or deduction is worth and who may be able to qualify for it. Taxes can get pretty complicated, so be sure to talk to a qualified tax professional about your situation.

1. The Child Tax Credit and Tax Credit for Other Dependents 

The Child Tax Credit (CTC) is intended to give families with qualifying children (and other dependents) a tax break. Unlike some credits, you can claim this credit even if you don't normally file a tax return. If you claim one or more children under 18 as your dependent, you can receive up to $2,000 for each child. Even better, this credit is fully refundable, which means that you can receive a tax refund even if you owe no taxes.

If you’re the caregiver for a family member who is not a qualifying child, you may still be eligible to make a claim using this tax credit, although the payment drops from $2,000 to $500. In 2017, the CTC was expanded to allow taxpayers to claim under the category “Credit for Other Dependents.” The taxpayer's spouse cannot be considered a dependent; however, this category can include siblings and parents. Learn more about it here

2. The Child and Dependent Care Tax Credit 

This credit differs from the CTC credit in that it is not based on the existence of a qualifying dependent or child. Instead, eligibility for the Child and Dependent Care Credit is determined by the money you have spent on caregiving costs for your children or dependents. Importantly, this money must be spent on caring for a child or dependent in a manner that enables the taxpayer to work (or look for work). For example, a qualifying expense would be the wages of a caregiver you have hired so you can return to work.

For the 2021 tax year, you can claim a portion of up to $8,000 in caregiving costs for one person and up to $16,000 for two or more. The credit is calculated as a maximum of 50% of these expenses, so for one person, you can receive up to $4,000, and for two people, you could receive up to $8,000. Common examples of what qualifies as expenses that allow you to work or look for work include daycare, babysitters, day programs, and at-home care. As with the CTC, this credit is refundable, so you may get some money back even if you owe no taxes. Learn more about this credit here

3. Medical and Dental Expenses Tax Deductions 

This deduction is designed to offset the money you spend on medical and dental expenses. If you spent more than 7.5% of your adjusted gross income (AGI) on medical or dental expenses that weren’t paid back by your insurance, you can deduct that money from your taxable income and owe less on your taxes. This deduction does not just apply to your personal expenditure, you can also count any money you spent on eligible expenses for your spouse and your dependents. 

Expenses include health insurance premiums and copays, medical treatment costs not covered by insurance, ambulance fees, prescriptions, home care, and bandages and wound care supplies; so your total expenses can add up quickly. For more information on what expenses you can claim, learn more here

Find Savings and Compensation for Caregivers with Aidaly 

According to research, the average family caregiver spends over a quarter of their annual income on caregiving and related expenses. We know that many family members and spouses work as caregivers without payment, and often loved ones take on this role without expecting any remuneration or recognition. 

However, there are programs, tax credits, deductions, and benefits all specifically designed to help people in your position. At Aidaly, we can help you access the benefits you deserve. Sign up today so we can help. 

Photo by Nataliya Vaitkevich from Pexels

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