According to the Centers for Disease Control and Prevention, 61 million Americans live with a disability. Of those, seven in 10 adults with more serious disabilities live with family members.
If you are helping to support a parent or other family member with medical issues or a disability, there are tax deductions and credits that may help offset the costs. Many rules regarding these tax breaks have changed over the past couple of years. Here is an update …
Dependency credit
The deductions and credits available to you largely depend on whether or not the disabled person you are supporting is your dependent.
If you would like to claim someone as a dependent, the person must have lived with you all year or be related to you, as defined by the IRS. This is not a problem if you are claiming a parent (in-laws and step-parents are also allowed), child or sibling.
If you are unsure if the person you are supporting would be considered related, see the extensive list in IRS Publication 501 at irs.gov.
It’s important to emphasize that if the dependent you would like to claim is related, they do not need to live with you. However, the following criteria must be met-
–They must be a citizen or resident of the U.S. or a resident of Canada or Mexico. Therefore, if you are supporting a parent in Canada or Mexico, you may be able to claim them as a dependent.
–They must not file a joint return. If this person is married, he or she must file separately. There is an exception if they are filing jointly, but have no tax liability. If the person files a joint tax return solely to get a refund, you can claim him or her as a dependent.
–They must not have a gross income a year of $4,200 (in 2019) or more. Gross income does not include Social Security payments or other tax-exempt income. (Some portion of Social Security income may be includable when gross income exceeds $25,000.)
–You must provide more than half of their support during the year.
The dependency exemption deduction was eliminated during the last tax law change and was replaced with the $500 dependency credit. A credit is different than a deduction in that a credit reduces the amount of taxes you owe, dollar for dollar. For example, if you owed $1,500 in taxes but have a $500 dependency credit, you would now owe only $1,000.
Medical expenses
Many taxpayers believe the medical expense deduction was eliminated or that the thresholds are so high it is now too difficult to deduct. Indeed, your medical expenses must meet the requirements to take a deduction. (To be deductible, the expenses have to exceed 10% of your adjusted gross income, and you have to itemize.)
However, if you combine the medical costs that you, your spouse and your dependents incur, the medical expense deduction can become a viable write-off. Also, many taxpayers do not realize that home health care services, special education, transportation and improvements to the home for accessibility, safety, and health are also deductible.
For a fascinating list of allowable medical deductions and all of the details, see IRS Publication 502.
Dependent care credit
If you worked or were a full-time student and paid for the care of a qualified person, you might be able to claim an additional credit. The tax break is commonly known as the child care credit, but it applies to payments made for any dependent who requires care.
It is also not limited to payments to daycare facilities. Home care also qualifies for the credit.
The amount of the nonrefundable credit is based on your earned income, adjusted gross income, the amount paid for care and the number of dependents receiving care. The maximum child and dependent care credit is $2,100 (based on two or more dependents and $6,000 or more of qualifying expenses).
Remember, it is a credit and not a deduction and offsets the amount of tax you owe.
To qualify for the credit, the adult must meet three requirements: they must have been unable to care for themself either physically or mentally, they must have lived with you more than half of the year and they generally would have been your dependent.
For detailed exceptions to the dependency rules and more information on the credit, see IRS Publication 503.
Head of household
If you are single, divorced or widowed, and are supporting a disabled family member, you might be able to take advantage of the tax-preferred head of household filing status.
The change to head of household status would increase your standard deduction for the 2019 tax year to $18,350 up from $12,200 if you were single. IRS Publication 501 provides more details on the head of household filing status.
A parent does not need to live with you for you to claim head of household status. A non-parent relative must have lived with you for at least half of the tax year to qualify.
Many of these rules are complex. You should seek the guidance of a licensed income tax professional to assist with tax planning. If you have already filed your 2019 return and now realize you may qualify for one of these deductions or credits, do not fear, you have three years from the date your return was due (including extensions) to file an amended (Form 1040x) tax return to claim a refund.
Michelle C. Herting, CPA, ABV, AEP specializes in trust, estate and gift taxes and business valuations. She has three offices in Southern California and is president of the Charitable Gift Planners of Inland Southern California. She does not prepare individual tax returns but is happy to provide a referral. Contact her via email at michelle@yourowncpa.com
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July 26, 2020 at 07:00PM
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