If you have a parent with health or mobility problems, you may find yourself helping out with living expenses and the cost of care. Recognizing that eldercare can represent a substantial financial burden for families, the federal government allows taxpayers who provide support to a parent or other adult relative to deduct some of these expenses and claim certain tax credits. To take advantage of many of these tax breaks, you must claim your parent as a dependent when filing your income taxes.
Before your parent can qualify as a dependent for tax purposes, you and your parent must pass several Internal Revenue Service (IRS) tests. An adult dependent must either live with you as a member of your household or be related to you. The IRS definition of relative is broad, and it includes not only children, parents, and siblings; but also nieces, nephews, aunts, uncles, in-laws, and stepparents. Relatives do not have to live with you to be considered dependents.
To qualify as an adult dependent in a given tax year, your parent’s gross income must not exceed the personal exemption amount, set at $4,050 for 2017. Generally, any taxable income from business activities, investments, pensions, retirement accounts such as IRAs or 401(k)s, and receipts from rental property count toward the gross income limit. Social Security income and other tax-exempt income may, however, be excluded.
Another important criterion the IRS uses to determine whether a parent may be claimed as a dependent is known as the support test. Support includes expenditures for food, lodging, clothing, medical and dental care, recreation, and transportation. To pass this test, you must demonstrate that you provided more than half of your parent’s total support during the year. This can be determined by comparing the entire amount of support your parent received from all sources, including Social Security and your parent’s own funds, with the amount of financial support you contributed. Your parent’s own funds are not considered support unless he or she actually spent the money to cover support-related expenses.
If you and your siblings together contribute more than half the cost of caring for your parent, you can file a multiple support agreement. Under this arrangement, you or one of your siblings agrees to take the personal exemption for your dependent parent, while the others sign a statement agreeing not to claim the exemption for that tax year. The adult child who takes the exemption must provide at least 10% of the dependent’s support.
Exemptions, Credits, and Deductions
Once you have established that your parent qualifies as a dependent for tax purposes, consider what tax breaks are available to you. To claim the full personal exemption for your parent of $4,050 in 2017, your income must be below $261,500 for single filers or $313,800 for married couples filing jointly. This exemption phases out at higher income levels, and it is completely eliminated for taxpayers whose annual income exceeds $384,000 for singles and $436,300 for married couples. You may also be eligible for a dependent care tax credit if your parent lives with you and requires care while you are at work. Up to $3,000 in care expenses per dependent may be used to calculate the value of the credit. The actual credit you receive, however, is a percentage of this amount ranging from 35% to 20%, depending upon income. If you are in a higher tax bracket and spend a large amount of money on dependent care, you may find that using a flexible spending account (FSA) offered by your employer to pay for dependent care expenses on a pre-tax basis will save you more money than claiming the dependent care tax credit.
If your parent does not qualify as your dependent for exemption purposes because his or her gross income is too high but meets the other dependency tests, the IRS may allow you to deduct medical expenses you paid for your parent. To take an itemized deduction for medical costs, the total amount you spend on medical expenses in a given year must exceed 10% of your adjusted gross income. By adding your parent’s expenses to your own, you may be able to meet this threshold and claim the deduction.