Tax Breaks: Do you qualify?

Review these tax credits

Disclaimer: We are not accountants, tax advisors or lawyers. Please consult professionals as you manage your finances and taxes.

Whether you have a child or are helping an older adult or both, you’ll want to make sure you are leveraging all relevant tax credits, deductions and employer-sponsored programs.

When it comes to children, ask your tax advisor about the following:

  • Child Tax Credit
  • Child Dependent Care Credit
  • Earned Income Tax Credit
  • Leveraging a Dependent Care Flexible Spending Account (DCFSA)

Child Tax Credit

The Child Tax Credit helps families with qualifying children get a tax break. You qualify for the full amount of the 2023 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.

This IRS Interactive Tax Assistant tool helps clarify the question of, “Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?”

Child and Dependent Care Credit

According to the IRS, “You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals).”

This IRS Interactive Tax Assistant tool helps clarify the question of, “Am I Eligible to Claim the Child and Dependent Care Credit?”

Earned Income Tax Credit

The Earned Income Tax Credit (EITC), sometimes called EIC, is a tax credit for workers with low to moderate income. Eligibility for the tax credit is based on various factors including family size, filing status and income. You can start with an eligibility test at the bottom of this page. 

FSA or Dependent Care Credit

You may be wondering if you can use both your employer provided Dependent Care Flexible Spending Account (DCFSA) and the Dependent Care Tax Credit. The answer is maybe.

According to the FSAFEDS, “You are not permitted to claim the same expenses on both your federal income taxes and Dependent Care FSA (DCFSA), although in certain situations you may be able to take advantage of both the DCFSA and the Child and Dependent Care Tax Credit. If you have two or more qualifying individuals as dependents, the IRS allows you to apply up to $6,000 of dependent care expenses to your taxes. The maximum allowable under a DCFSA is $5,000, so you may apply the $1,000 incremental difference between the DCFSA maximum and the Child and Dependent Care Tax Credit if you have two or more dependents and your expenses exceed $5,000.”

If you have a DCFSA, you can use it to pay for a variety of child and adult care services. The IRS determines which expenses can be reimbursed by a DCFSA. This list from the FSAFEDS shows the eligibility of some of the most common dependent care expenses, but it’s not meant to be comprehensive.

Ask your tax professional to advise you on what is best for your situation.

When it comes to older adults, ask your tax advisor about the following:

  • Claiming an older adult as a dependent
  • Medical expense deductions for an older (dependent) adult
  • Head of household status

Claiming an older adult as a dependent

According to the IRS, you can claim your parent as a dependent if:

  • You (and your spouse if filing jointly) are not a dependent of another taxpayer.
  • Your parent, if married, doesn’t file a joint return, unless your parent and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid.
  • Your parent is a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico.
  • You paid more than half of your parent’s support for the calendar year.
  • Your parent’s gross income for the calendar year was less than $4,400.
  • Your parent isn’t a qualifying child of another taxpayer.
  • If your parent is your foster parent, they must have lived with you all year in your main home and as a member of your household.
Two tips related to claiming an older adult as a dependent

If you are supporting more than 50% of their living expenses, medical care, and other care, you may be able to claim them as a dependent.To be claimed as a dependent, the family member doesn’t need to live in your home for the entire year as long as they meet other guidelines.

Medical expense deductions

According to the IRS’s guidelines for which medical expenses you can approve are defined here: “You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them.”

According to the IRS (with some exceptions) “If you itemize your deductions and your parent was your dependent either at the time the medical services were provided or at the time you paid the expenses, you may claim a deduction for the portion of their expenses that you paid during the taxable year, not compensated for by insurance or otherwise.

Your medical expense deduction is limited to the amount of medical expenses that exceeds 7.5% of your adjusted gross income.”

The IRS has a list of eligible medical expenses which includes things like dentures, hearing aids and medically necessary home modifications like ramps and handrails. 

Head of household status

The IRS’s ‘special rule for parent’: “If your qualifying person is your parent, you may be eligible to file as head of household even if your parent doesn’t live with you. However, you must be able to claim your parent as a dependent. Also, you must pay more than half the cost of keeping up a home that was the main home for the entire year for your parent. If you pay more than half the cost of keeping your parent in a rest home or home for the elderly, that counts as paying more than half the cost of keeping up your parent’s main home.”

If you are unmarried at the end of the year and can claim an older adult as your dependent, consider filing under ‘head of household’ instead of ‘single.’ If you are married but live apart from your spouse, ask your tax advisor if you can file as ‘head of household’.

TIP from the IRS:

Are you 50+ years old and need help filing for this year? 

AARP has a free tax filing program aimed at taxpayers who are 50 years and older. AARP Foundation Tax-Aide is the nation’s largest free filing program. It’s available across the country and staffed by volunteers who are trained and certified by the Internal Revenue Service. You don’t have to be an AARP member to use this service. An online site locator can help you find one near you. Even if you’ve already filed this year, keep this in mind for next year.