Are you part of the generation that is feeling the financial squeeze? I am talking about those of you who both took in elderly parents to take care of them, as well as still have children living at home.
It can be tough to make ends meet and to meet everyone’s needs when there are so many people and generations under one roof. It can also be slightly confusing where taxes are concerned. After all, your elderly parents are likely bringing in social security income, your siblings may be chipping in on expenses with you, and the money lines may be blurring.
How are you supposed to handle these situations? Can you claim your parents on your taxes?
How to Claim Your Parent as a Dependent
Just like you can claim a child as a dependent, you can also claim your elderly parent as a dependent if your situation meets certain requirements. A dependent is defined by the IRS as, “a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent, a person must be your qualifying child (or your qualifying relative).”
Here are the Qualifying Relative requirements that must be met (all of them) in order for a relative to meet the “Dependent” definition:
- A person unable (physical or mentally) to care for themselves
- A person who lived in your home for more than 50% of the year
- A person who earned a gross income of $3,900 or less (hint: social security checks are not counted)
- You provided for more than 50% of their costs for living, such as medical care, food, housing, insurance, and transportation
There are no age requirements.
Can You Deduct Your Parent’s Care Expenses?
Have you heard of the Child and Dependent Care Credit (aka Elderly Dependent Care Credit or the Aging Parent Tax Credit)? It is likely that your elderly parent is having some sort of care outside of the home. In order for that to receive the nonrefundable tax credit when you file your income taxes, the following requirements must be met:
- You incurred these care costs while you and your spouse were working or looking for work.
- The person is either your child aged 12 or younger, or a person who is physically or mentally unable to care for themselves.
- You cannot have paid out to a dependent, spouse, or child as the person who gave this care; the payment must have been made to a care facility. In order to regulate this, you must provide the care provider’s name, address and tax ID number must be stated on your tax return.
- If you receive benefits from your employer in order to pay for dependent care, then that needs to be deducted from the credit amount.
- Expenses that count towards this are things like home care or adult day care costs. Unfortunately, care provided in skilled nursing facilities/assisted living residences aren’t considered eligible because the IRS does not feel that this type of care frees the individual to be able to work.
Note: the total expenses eligible for this nonrefundable tax credit is $3,000 for one qualifying dependent, or $6,000 for two or more qualifying dependents.
For more information, check out IRS Form 2441: Child and Dependent Care Expenses.
Dealing with Contributions from Siblings and Others
It’s typical that siblings may be contributing towards some of your parents’ expenses (and hopefully for you, they are). It turns out that if your siblings contribute towards your parents’ bills, you can count this towards the 50% or more contribution needed in order to claim your parent(s) as a dependent on your tax return. This is good news! It’s nice to not have to shoulder the entire financial burden yourself.
Are You a Household Employer?
It turns out that when you hire someone to come into your home and care for your dependent, you may be considered a Household Employer by the IRS. And of course, this has tax consequences. You are a Household Employer if you have a Household Employee. The IRS defines a Household Employee as someone who you control as far as tasks as well as how the tasks are completed. It does not matter if they are part-time or full-time, or if you pay them hourly or weekly, or on salary. For more information and to understand the tax consequences of this, check out IRS Publication 926: Household Employer’s Tax Guide.
FYI: this also includes things like babysitters, house cleaners, drivers, health aides, nannies, yard workers, etc.