The financial burden of caregiving can be overwhelming. Family caregivers often face decreased productivity or complete withdrawal from the workforce and associated income. Caregivers can incur significant out-of-pocket expenses for medical care, home modifications, assisted living, or other supportive services. Family caregiver pay rarely covers all the financial and emotional costs of care. In addition, the physical and emotional toll of caring for a loved one can result in lost wages and diminished retirement savings. How can families cope? Finding ways to offset tax burdens and earn credits can help with family finances.
The Child Tax Credit (CTC) is a tax credit of up to $2,000 for each qualified dependent child. It is available to taxpayers with at least one dependent child under 17 and meets other requirements determined by the Internal Revenue Service (IRS). The credit is refundable and phases out as adjusted gross income rises.
This credit reduces your federal tax bill and can even result in a refund. The refund can come via direct deposit or mail. Depending on family income, caregivers can claim the Additional Child Tax Credit, which offers an even larger refund. While most family caregivers cannot earn a Child Tax Credit for eldercare, they might be eligible for the Additional Child Tax Credit. Family caregivers who care for disabled adult children may qualify for the total Child Tax Credit.
The CTC was established in the 1997 Taxpayer Relief Act and structured as a non-refundable credit of $500 per child to offer tax relief to middle- and upper-middle-income families. In 2001, the CTC was aligned with the Earned Income Tax Credit (EITC), increased to $1,000 per child, and made partially refundable. The refundable portion is referred to as the Additional Child Tax Credit (ACTC). The availability and amount of the credit were further expanded in 2008 and 2009 to help lower-income households become eligible. The income threshold increased again in 2012, and the refund threshold was lowered in 2015.
In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the child tax credit to $2,000, increased the refundable credit maximum to $1,400 per child, increased the income level at which the credit phases out, and reduced the threshold for the refundable credit. These changes will expire on December 31, 2025.
The American Rescue Plan (ARP) Act of 2021 temporarily expanded the CTC for the tax year of 2021, increasing the credit to $3,000 per child (and even higher for children under age 6), extending the credit to 17 year-olds, and making the CTC fully refundable to all families, including those with low or no incomes.
The CTC was temporarily expanded in 2021 by the American Rescue Plan Act of 2021 The changes included:
These enhancements all expired on December 31, 2021.
For the 2022 tax season, the child tax credit returns to $2,000 per child under the age of 17 claimed as a dependent. The credit starts to phase out if your 2022 modified adjusted gross income (AGI) exceeds $400,000 on a joint return or $200,000 on a single or head-of-household return.
For 2022, only up to $1,500 of the child credit is refundable for some lower-income families with children. You need at least $2,500 of earned income to qualify for this partial refund.
Any claimed dependents must be a U.S. citizen or resident alien and have valid Social Security Numbers. If you are a taxpayer providing childcare or a dependent care provider, you may be eligible for the Child and Dependent Care Tax Credits. The qualified dependent has to have lived in the U.S. for six months. Caregivers need to provide documentation that they provided over half of the financial support of the qualified dependent.
Not all family caregivers qualify. The credit has an income requirement, with eligibility phasing out at an income of $200,000 for single taxpayers and $400,000 for married taxpayers filing jointly. The dependent can earn up to $4,400 in a single year. If you have questions, speak with a licensed tax preparer.
If you care for an elderly parent or family member, you may be eligible to claim the Child Tax Credit. You must provide proof of care and have your parent or family member's Social Security Number to qualify. Additionally, you must prove that you meet all of the financial requirements for eligibility.
To claim your parent, an elderly relative, or an adult child, the dependent cannot have filed their return. Another relative cannot claim them as a dependent. This may be something to check for aging relatives. Many times, a senior may have been claimed by another person.
In certain circumstances, a family caregiver can claim a disabled adult relative. To do so, the dependent must have lived in your home for the entire year and have an income of less than $4,300. You must also provide more than half of their financial support to qualify. Additionally, this is the only one who can claim the dependent on their taxes.
Caregivers may be eligible for a credit that can help cover the costs of providing care. The IRS recognizes permanent disability as a disability that prevents your adult child or relative from engaging in any substantial gainful activity or is expected to result in death. Permanent disability can include physical, mental, and intellectual impairments that render an individual unable to work and disabled under the Social Security Administration's standards.
The IRS allows taxpayers with disabilities to deduct certain expenses associated with caregiving, including services and supplies used primarily for the care of the disabled person. This deduction can help ease some of the financial burdens of being a family caregiver. Always check with your tax adviser to ensure you meet all the necessary criteria.
Tax deductions and credits help offset a family caregiver's overall financial burden. Because family caregiver pay is so low, any way to gain a tax credit helps with family finances. The Child Tax Credit was designed to help families with the costs associated with raising a child. However, the tax credit can also apply to adult children with disabilities. The Additional Child Tax Credit may apply to qualified elderly relatives living with the family caregiver.
To apply for the Child Tax Credit, fill out IRS Form 1040 or 1040-SR and include Schedule 8812. You may need to provide ample proof and documentation, and the IRS may require additional information regarding income or residency. Once eligible, the credit will be applied to your overall tax burden. If the amount covers the taxes owed, The IRS will send the remaining refund via direct deposit or U.S. mail. In general, direct deposit tax refunds arrive sooner.
Once you complete the appropriate form, such as Form 1040, and calculate your taxable income, then you can use the tax credit calculator provided by the Internal Revenue Service (IRS) to determine the amount of the credit you are eligible to receive.
A tax credit payment schedule is the timeline by which a tax credit, such as the Child Tax Credit, is paid out to eligible taxpayers. The payment schedule can vary and may be determined by the government agency responsible for distributing the credit, such as the Internal Revenue Service (IRS) in the case of federal tax credits in the United States. Some tax credits may be paid out in a lump sum, while others may be paid in installments, such as monthly payments. The specific payment schedule for a tax credit will typically be outlined in the legislation creating the credit or in related guidance from the government agency responsible for its administration.
The schedule for the Child Tax Credit payments in 2022 has yet to be officially announced by the Internal Revenue Service (IRS). In the past, the IRS has made payments for the Child Tax Credit either monthly or as part of a taxpayer's refund. It is recommended to check with the IRS for updates and official information regarding the 2022 Child Tax Credit payments schedule.
If you qualify for the Earned Income Tax Credit, you may also be eligible for other tax credits, including the following:
