Tax credits, such as elderly tax credit and the disabled, are credits applied to taxes owed. For example, if you owe $2,000 in taxes and have a loan of $700, you only have to pay $1,300. The Elderly and persons with the disabilities tax credit is a credit for people over 65 and people under 65 with disabilities. However, to benefit from the tax credit as a disabled person, it is necessary to be retired on permanent and total disability (which prevents the individual from working). And you must have received taxable disability income during the year.
Although a tax credit is not a source of new resources or specific funding for elderly care, it is additional disposable income. It can be used to lower the total cost of caring for an aging loved one. When combined with other options, it can mean the difference between paying for home care or assisted living or not having the option of both.
If you are 65 or older in 2020, you need to complete Form 1040-SR and Schedule R (Form and Instructions) for the fiscal year 2020 when you prepare your taxes.
Typically, the elderly tax credit is 15% of the original amount, less the total of non-taxable retirement benefits and other non-taxable pensions, annuities, or disability benefits received. 50% of the adjusted gross income will be added and deducted from the AGI limit value. Additionally, some tax software will apply the appropriate standard deductions for your eligible senior employee.
Tax credit for elderly and disabled people versus dependent care credit
For some families, depending on their tax situation, it may be advantageous to waive tax credits for the elderly and disabled and to ask the dependent elderly person to file an income tax return for an adult child. This would enable the adult child to use the care credit. However, it is important to note that the dependent credit cannot be used for people living in care or skilled care facilities.
The following three tax options can also indirectly help reduce the cost of eldercare.
Federal Tax Credits for Elderly Dependent Care
State Tax Credits for Elderly Dependent Care
Tax Deductions of an Elderly Dependent's Medical Expenses
It can be difficult to decide how to structure your expenses and choose between the available tax credits and the deductions for the biggest tax savings. Talking to a tax professional can make this process much easier, making it easy for tax filers to go through various scenarios and choose the best approach.
How to Qualify
Age: Individuals must be 65 or above at the end of December 2019 to apply for this. Interestingly, individuals are considered to be 65 or over on the previous day of the actual birthday for this tax credit. There is an age exception for elders under 65 who are receiving a permanent and total disability pension and receive taxable disability income. These people must have a medical certificate attesting that they had a permanent and total disability at the time of retirement.
Citizenship: Individuals must be US citizens or resident aliens.
Disability / Health: There is no health or disability requirement if the filer is 65 years of age or older. If you are younger, you must be a permanent and total disabled pensioner and receive taxable disability income.
Family Status: Married and single people are entitled to this credit. But for couples to apply for this loan, they must apply for it together. An exception is if the couple qualifies as married, living separately, which means they haven't lived together all year.
Financial: This loan has eligibility limits based on the adjusted gross income of the taxpayer or the total of non-taxable Social Security and other non-taxable pensions, disability income, and annuities.
You must get a medical certificate stating that you cannot perform profitable activities due to your mental or physical condition. The condition has lasted or is expected to last continuously for 12 months or more, or that the condition is expected to result in death.
Even if you meet all of the conditions listed above, you may not be eligible for the tax credit if your taxable income exceeds the limits listed or if your non-taxable income is excessive.
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