8 Ways to Help Ease the Financial Strain of Elder Care
Last year, approximately 19% of Americans were considered unpaid caretakers of their elderly or disabled family members. Family caregivers provided a total estimate of $470 billion in unpaid care. And, according to AARP’s Caregiving Out-Of-Pocket Costs Case Study Guide, caretakers spent an average of $7,242 to support their loved ones–while the majority of them worked full-time. If you currently find yourself in this situation, then you may be finding it tough to make ends meet while providing quality care.
Thankfully, the government provides several tax breaks, credits, and deductions to make caring for your elderly loved one, a bit more affordable. How can you receive these tax breaks? The person under your care must qualify as a dependent on your tax return, their income for the year must not exceed $4,300, and you must pay for more than half of their support expenses. In addition, some programs require the dependent to live with you or meet certain family relationship criteria.
If you are currently caring for aging family members, or plan to in the near future, here are 8 ways to help ease the financial strain:
1) Medical Expense Deductions. If you paid for an elderly parent’s hospital stay or footed the bill for expensive medical or dental care, and weren’t reimbursed by insurance or other programs, you might be able to deduct the cost on your taxes. In general, you can deduct qualified medical expenses that are more than 7.5% of your adjusted gross income.
2) Child and Dependent Care Credit. Also referred to as the Elderly Dependent Care Credit is a tax credit for expenses an individual or family incurs, for the care of a dependent. If you paid for someone to take care of your parent so you could work or actively look for work, you might qualify for a credit.
3) The $500 Dependent Credit. If your dependent is a U.S. citizen over the age of 17, then you may be eligible for a $500 credit. For details, visit the IRS website.
4) Employer Flexible Spending Accounts (FSA). An FSA allows you to contribute a portion of each paycheck towards qualified medical expenses. Some FSAs are for child care and elder care, but this depends on your employer. Typically, you won’t pay taxes on anything you spend from an FSA as long as the money is used to pay for qualified medical expenses.
5) $1,400 Stimulus Check. A caretaker may qualify for the $1,400 stimulus amount disbursed in March if they didn’t claim their elderly relative as a dependent in 2020. For example, your elderly parent lived on their own in 2020 and received the stimulus check. Then during that same year, moved in with you. You may also qualify for the $1,400 tax credit when filing your 2021 tax return.
6) State Tax Breaks. Some states may have their own tax benefits and social programs for qualified individuals and families. Therefore, it’s especially important to check your state’s revenue service for more information. If you don’t know where to start, then you should reach out to a tax professional.
7) Contribute to a 401(k). Naturally, you want to get the greatest tax benefits possible. Your adjusted gross income will affect your eligibility for most programs and credits at all levels of government. Put money into a 401(k) or an individual retirement account. Contributions are made on a pretax basis, which lowers the amount of taxable income reported when you file your taxes.
8) File Taxes as “Head of Household.” Depending on whether you’re filing as single, joint, or head of household, your income eligibility for certain programs may change. If you file as head of household, you’ll be eligible for more programs, while paying lower income taxes.
Managing the finances and the well-being of aging parents can be challenging. Take advantage of these programs and credits to help ease your financial burden and to keep your loved one safe, happy, and healthy.
Please note that NIHFCU does not provide tax advice. Please consult with your tax advisor.
Resources:
IRS.gov
AARP, Family Caregiving, Financial and Legal
CNBC, Caring for Aging Family Members Can Be Very Costly. Don’t Miss Out on These Tax Breaks
