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Caregivers May Qualify for Tax Credits

Caregivers May Qualify for Tax Credits As the baby boom generation makes its way toward retirement, many are finding that they are facing a new responsibility: providing care for their aging parents. According to the 2009 report, "Caregiving in the U.S.," by the National Alliance for Caregiving and the American Association of Retired Persons (AARP), family members provide 86% of care, with unpaid care provided by approximately one quarter of U.S. households. In order to provide care, six out of ten of these caregivers have had to readjust their work hours or leave work altogether. Caregivers need help in many areas. For those with reduced work schedules and moderate incomes financial concerns are paramount. Many caregivers are simultaneously striving to raise children, save for retirement, and meet daily bills. Enter Uncle Sam. With the Child and Dependent Care tax credit, the federal government has recognized this financial strain and has tipped its hat to families providing care. The Child and Dependent Care tax credit may be worth up to $3,000 for one dependent or $6,000 for two or more dependents. In addition to the number of dependents, the amount depends on your income and the cost of qualified expenses. Qualified expenses include home nursing care, licensed care centers, nursery school and kindergarten costs, and other necessary domestic help for the well-being of the dependent. The dependent must live with you and be a) under age 13, b) a physically or mentally disabled spouse, or c) incapable of self-care regardless of age. Like any tax credit, in order to claim it, certain qualifications must be met, including the following: Care-related expenses must be incurred in order for the provider to earn an income. Married couples claiming the credit must both work at least part time, with an exception for disabled spouses or those who are full-time students. The caregiver must be responsible for over 50% of the dependent’s household maintenance expenses. Married individuals must file a joint tax return, unless they qualify under separation rules. Deductible household help must not have been paid to a child under 19, a spouse, or another dependent. If hired help provides care, the caregiver will be required to file the person’s name, address, and taxpayer identification number with his/her tax returns. The Child and Dependent Care tax credit covers 20%–35% of the first $3,000 or $6,000 of expenses, depending on the number of dependents and the caregiver’s adjusted gross income (AGI). It’s clear that caregivers need all the help they can get, and the federal government is offering a small measure of relief to those who qualify through the Child and Dependent Care tax credit. The Family Caregiver Alliance (FCA) reports, “As a result of their caregiving, informal caregivers are estimated to each lose an average of $25,494 in Social Security benefits, an average of $67,202 in pension benefits and an average of $566,433 in wage wealth. Combined, the result is a loss of $659,139 over a lifetime” (FCA, 2006). In order to help combat these losses, caregivers can learn about local community-based services by calling the Eldercare Locator at 800-677-1116 or by logging on to For specific tax advice, consult your qualified tax professional.