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  5. Tax Tips for Caring for a Disabled Spouse

Tax Tips for Caring for a Disabled Spouse

Updated for Tax Year 2022 • December 1, 2022 09:21 AM


OVERVIEW

Caring for a disabled spouse can be a financial strain, but you do have opportunities to reduce the burden. There are many tax credits and other tax breaks available for disabled individuals and their caretakers. Among the most common are the Tax Credit for the Elderly or Disabled, the Child or Dependent Care Credit, and the Medical Expenses tax deduction.


For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.


 

tax tips for caring for a disabled spouse

Taxable and non-taxable disability

If your spouse is receiving disability payments, it's important for tax planning purposes to understand the source of the payments to help determine whether those benefits are taxable. Some examples of taxable and non-taxable benefits include:

Taxable

  • Disability benefits from an employer, much like wages from that employer
  • Benefits from a disability insurance policy that was paid for by an employer
  • When the cost of a disability policy's premiums is split between an employer and an employee, any benefits attributable to the employer's portion of the premiums or paid using pre-tax dollars
  • Social Security disability income, depending on the amount of ‘other’ income an individual earns

Non-Taxable

  • Benefits from a disability insurance policy that you paid the premiums using after-tax money
  • Veterans disability benefits

Credit for care expenses
If you pay someone to provide care for your disabled spouse, such as a live-in nurse or aide, you might be eligible for the tax credit for Child and Dependent Care Credit. This is the same credit that working parents claim when they pay for child care. Though you cannot actually claim your spouse as a dependent on your tax return, you can treat him or her like one to claim this credit if your situation meets the following conditions:

  • Your spouse is physically or mentally incapable of caring for himself or herself
  • Your spouse lived with you for at least half of the year
  • You paid someone to care for your spouse so that you could work, look for work, were a full-time student, or are unable to care for yourself
  • You had earned income from an employer or self-employment

The amount of your tax credit depends on several factors, including your total earned income, how much you paid for care, and whether you are also paying for child care or care for another dependent. However, unlike many other tax breaks, this one doesn't have an upper income limit - except in 2021. In 2021, the credit is unavailable for any taxpayer with adjusted gross income over $438,000. In other years, those with higher-income may get a smaller credit than those who earn a lower-income with the same expenses, but they still get something.

Disability tax credit

People who are unable to work and are receiving disability payments might also qualify for a tax break called the credit for the elderly and disabled. Your spouse could qualify for this credit if all of the following apply if your spouse:

  • Retired from their job on "permanent and total disability"
  • Received taxable disability benefits from a former employer or from an insurance policy provided by that employer
  • Was younger than the employer's mandatory retirement age (if it has one)
  • Had income that was not above certain limits

The term "permanent and total disability" is a disability that meets these criteria:

  • Not able to work because of their condition
  • A doctor has certified that their condition will last for at least 12 months or is terminal

You claim this credit—and figure out how much your credit is—by filing Schedule R with your tax return. When you use TurboTax, we ask you simple questions and fill in the right forms for you.

Medical expenses deduction

Caring for someone with a disability often means significant ongoing costs, such as for doctor visits, medication, therapy or mobility equipment, or modifications to your home, like a wheelchair ramp. Depending on your situation, you might be able to claim a tax deduction for a portion of your family's medical expenses. Deductions reduce your income, and therefore the amount of tax you owe. The main rules for deducting medical expenses are:

  • Your costs must fit the IRS definition of qualifying medical expenses. The definition is fairly broad. IRS Publication 502 provides information on many common expenses.
  • You can deduct only the portion of your expenses that exceed 7.5% of your income in 2022. If you have gross income of $50,000, for example, the first $3,750 of expenses ($50,000 x 7.5% = $3,750) would not be deductible.
  • You can't deduct any expenses that were reimbursed by an insurance company or someone else

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