Here's a list of key tax credits and deductions that people taking care of older adults should know about:
Credit for the Elderly and Disabled
This tax credit enables people who are over 65 (or are under 65 but became permanently disabled and were forced to retire) to deduct money from their taxable income, as long as they are not claimed as a dependent on another taxpayer's return and meet certain income qualifications.
The first income qualification involves the taxpayer's total AGI. For the 2016 tax year, an individual cannot qualify for the Credit for the Elderly and Disabled if their AGI is greater than:
- Single or head of household: $17,500
- Married filing jointly and only one spouse is over 65 and/or blind: $20,000
- Married filing jointly and both spouses are over 65 and/or blind: $25,000
- Married filing separately and spouses lived apart for all of 2016: $12,500
The second income qualification a taxpayer must consider is the amount of nontaxable income they receive each year, typically from social security, annuities, pensions and disability benefits. For the 2016 tax year, an individual cannot qualify for the Credit for the Elderly and Disabled if their nontaxable income exceeds:
- Single or head of household: $5,000
- Married filing jointly and only one spouse is over 65 and/or blind: $5,000
- Married filing jointly and both spouses are over 65 and/or blind: $7,500
- Married filing separately and spouses lived apart for all of 2016: $3,750
Taxpayers who qualify for this credit have the option of either personally calculating the amount they can deduct or having the IRS do the math for them. The amount of money a person can receive from the Credit for the Elderly and Disabled varies depending on their income.
Larger standard deduction for older adults
Older adults can claim a higher standard deduction if they (or their spouse) are at least 65 years old. This deduction can be further increased if one or both of the individuals are blind.
Elderly Dependent Care Credit
Commonly referred to as the "Child and Dependent Care Credit," this tax credit can be claimed by a person who pays for an outside caregiver (e.g. home health aide, adult day care services) to look after an older relative so that they (the taxpayer) can work. An older adult does not have to qualify as a dependent for tax purposes in order for their family member to claim this credit, which can be found on line 49 of Form 1040. However, there are a few important factors to keep in mind.
- First, the taxpayer cannot claim this credit if the person they're paying to care for an older adult is their own child who is under 19 years if age.
- Second, the Elderly Dependent Care Credit does not apply to money that is paid so an older adult can be cared for in a nursing home or assisted living facility.
- Third, it's important to be aware that hiring an in-home caregiver who doesn't work for an outside agency can have certain tax consequences in the eyes of the IRS. For more information on how hiring an independent caregiver can affect taxes, see "The Tax Implications of Hiring a Home Caregiver." (link to article)
Certain states also offer a separate state Child and Dependent Care Credit, which is typically calculated as some percentage of the taxpayer's federal Child and Dependent Care Credit amount. The following states allow for additional Child and Dependent Care Credits:
- District of Columbia
- New Mexico
- New York
- Rhode Island
- South Carolina
Additional itemized deductions
A dependent's medical and dental expenses can be deductible on their family member's tax return. If an older adult is not considered a dependent because they had more than $4,000 in taxable income in 2015, then their medical expenses may still be able to be deducted by their caregiver if the caregiver provided more than 50 percent of the older adult's support during the year.