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Tax Breaks for Grandparents Raising their Grandchildren

By Woods & Durham, Jan 2 2018 07:00AM

More and more individuals who thought their child- rearing days were over are now raising their grandchildren. Grandparents in that challenging situation and those who think they might be in that situation someday should be aware that a variety of tax breaks may be available to ease the financial burden of becoming primary caregivers for grandchildren. These include head of household filing status, exemption for the child, earned income credit, child tax credit, credit for child and dependent care expenses, credits or deductions for qualified education expense, deductions for medical and dental expenses, and the adoption credit. See descriptions below of each tax break.

Head of Household filing status: An individual who is considered unmarried and has a qualifying child may be eligible to use head of household status as his or her filing status. This status is generally more favorable than a single filing status. An unmarried taxpayer may qualify as head of household by maintaining as his or her home a household that is the principle abode, for more than half the year, of a qualifying child or an individual that the dependency deduction can be claimed on.

Exemption for the child: A grandparent who has a child living with him or her may be able to claim the child as a dependent. A person generally qualifies as the taxpayer’s dependent if the person is the taxpayer’s qualifying child or qualifying relative. The exemption is $4,050.

Earned income credit: A grandparent that is working and has a qualifying child living with them may be able to take the earned income tax credit. Maximum credit is $6,269.

Child tax credit: A grandparent who is raising a child under the age of 17 may be able to take the child tax credit. Maximum credit is $1,000 per child.

Credit for child and dependent care expenses: This credit may be available to a grandparent that pays someone to care for a qualifying individual, who has the same principal place of abode as the grandparent for more than half the year, where the amounts are paid for period in which the grandparent works or looks for work. Maximum credit is 35% of employment related care expenses.

Education expenses: There are a number of tax breaks to grandparents who pay his or her grandchild’s education costs. These tax breaks include the American Opportunity tax credit, Lifetime Learning credit, Coverdell Education Savings Accounts, Qualified Tuition Programs/529 Plans, higher education exclusion for savings bond income, and a deduction for student loan interest.

Medical and dental expenses: An individual who itemizes can deduct the amount by which certain unreimbursed medical and dental expenses paid during the year for himself or herself, his or her spouse, and his or her dependents exceed 10% of his adjusted gross income.

Adoption expenses: If a grandparent legally adopts his or her grandchild, he or she is eligible for a credit of up to $13,570. In addition to adoption fees, qualified expenses include court costs, attorney fees, and travel expenses. State often also offer a separate adoption expense credit.

Employer Benefits: Grandparents who are still employed when they take on primary caretaker responsibilities for a grandchild should consult their company’s human resources representative to see if they are eligible for grandchild-related benefits under various employer plans, such as reimbursement arrangements, health flexible spending arrangements, employer provided health plans, and dependent care assistance programs.

For more details on these tax breaks and how they may benefit you in your particular situation please contact Woods & Durham.

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