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 a 2007
report by the American Association of Retired Persons (AARP),
“Valuing the Invaluable: A New Look at the Economic
Value of Family Caregiving,” almost one fifth of U.S.
workers (19%) are informal caregivers. The average caregiver
spends more than 20 hours per week providing unpaid care,
and in order to provide that care, many have had to readjust
their work patterns 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). The chart below outlines the maximum
credit according to income.
Adjusted
Gross
Income |
Percentage
of
Credit |
One
Dependent |
Two
+
Dependents |
$15,000
and under |
35% |
$1,050 |
$2,100 |
$15,001-$17,000 |
34% |
$1,020 |
$2,040 |
$17,001-$19,000 |
33% |
$ 990 |
$1,980 |
$19,001-$21,000 |
32% |
$ 960 |
$1,920 |
$21,001-$23,000 |
31% |
$ 930 |
$1,860 |
$23,001-$25,000 |
30% |
$ 900 |
$1,800 |
$25,001-$27,000 |
29% |
$ 870 |
$1,740 |
$27,001-$29,000 |
28% |
$ 840 |
$1,680 |
$29,001-$31,000 |
27% |
$ 810 |
$1,620 |
$31,001-$33,000 |
26% |
$ 780 |
$1,560 |
$33,001-$35,000 |
25% |
$ 750 |
$1,500 |
$35,001-$37,000 |
24% |
$ 720 |
$1,440 |
$37,001-$39,000 |
23% |
$ 690 |
$1,380 |
$39,001-$41,000 |
22% |
$ 660 |
$1,320 |
$41,001-$43,000 |
21% |
$ 630 |
$1,260 |
$43,001
and over |
20% |
$ 600 |
$1,200 |
|
|
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 www.eldercare.gov.
For specific tax advice, consult your qualified tax professional. |
