Federal tax credit for elderly dependent care

Federal Child and Dependent Care Tax Credit is not just for kids. If you have elderly parents and pay for their care while you work, you may be eligible for a federal tax credit!

The tax credit is for work-related expenses a taxpayer incurs for the care of a dependent or qualified relative so the taxpayer(s) can work or look for work. The credit is filed on federal Form 2441.

Home care or adult day care costs are examples of expenses that are eligible for this credit. Skilled nursing facilities or assisted living residences are not eligible if the individual is a full-time resident.

Requirements:

1. No age requirement.

2. The person in need of care must be physically or mentally unable to care for him/herself. Persons who cannot dress, clean, or feed themselves, and those requiring constant attention to prevent injury are considered unable to care for themselves. A diagnosis of Alzheimer’s or dementia does not automatically make one eligible, but most individuals with these conditions will meet this requirement.

3. Must live with the taxpayer for more than half of the year.

4. The person would have been a dependent except that he or she received gross income higher than the allowed maximum ($4,150 in 2018).

5. Taxpayer must have earned income for the year—work-related expenses must be paid so that the taxpayer can work.

Taxpayer CANNOT hire their spouse or another dependent to provide the care; the care provider’s name, address, and employment ID number or social security number must be reported on the tax return. Keep in mind that hiring someone to come to your home and provide care may make you a “household employer.” As a household employer you may have to pay social security, Medicare, and unemployment taxes under Form Schedule H.

The Federal Child and Dependent Care Tax Credit is based on a maximum of $3,000 work-related dependent care expenses for one qualifying individual ($6,000 expenses for two or more) and can result in a credit of $600 to $1,050 for one qualifying individual ($1,200 and $2,100 for two or more), depending on the amount of the taxpayer’s adjusted gross income.

If your employer has an FSA account, you may be able to exclude up to $5,000 of elderly dependent care costs from your wages. If you received such benefit, you must subtract the amount excluded from your