Taking care of your elderly parents isn’t a cheap undertaking, especially if they need special equipment to help take care of them. If they aren’t working and have no benefits or pension to rely on, you would have to cover any costs. I always wondered how we would afford the extra cost if it came down to my wife and I taking care of our own parents, along with our growing family. My dad is self-employed, so there won’t be a pension for him to fall back on.
Well, the simple answer is, YES. I was happy to discover I can claim my elderly parent as a dependent on my taxes. But, there are essential guidelines you have to follow. You don’t want the eager suits at the IRS knocking at your door.
How to claim elderly parents on your taxes
Once you decide to take care of your parents, you can claim them as dependent on your taxes. When you were a child, they claimed you as a dependent. So, now it’s your turn.
The Internal Revenue Service (IRS) is the governing body that permits you to claim your parents as a dependent on your taxes.
To claim your parents as dependent, you must follow some basic conditions which are:
- You are not a depend on any taxpayer
- Nobody else is claiming your parents as a dependent
Apart from these two conditions there is a set of guidelines which are defined by the IRS on their website. You can go through Publication 501 from the IRS website for a detailed explanation. Here is a link to a pdf version of Publication 501. Pages to note are 2,3,11,12,18-24.
Is your parent eligible to be claimed by you?
Claiming your elderly parent as a dependent on your tax return can help reduce the income tax you owe. You can even claim an extra exemption for your personal expenses for every dependent, which will reduce your burden on taxes and you may even get some money back.
But, the mere decision of taking care of your parents isn’t enough. You must check if you both are eligible and qualify according to the guidelines set out by the IRS.
Once you clarify that both of you are satisfying the required conditions then you can go ahead with the basic procedure.
Apart from the points mentioned above there are few more conditions that need to be met.
Let us have a look at the eligibility criteria needed to be fulfilled if you want to claim your parents as dependents:
1. Income Criteria
Your parent must satisfy the income criteria decided by the IRS according to which he/she must not have any source of income which is taxable.
Meaning your parents must not have earned or received any amount which is more than the exemption amount for the particular tax year. He/she is also not entitled to have any revenue from dividends, interests, or rented properties.
If there are any such revenue streams crossing the tax exemption limit, they will be subject to tax deductions.
There may be some exceptions depending on other factors but mainly a part of Social Security (which is not included in the gross income) may be taxable.
- In case of Social Security Retirement Benefit
If your parent goes back to work even after retirement and his income is more than the exemption limit than you may not be able to claim him on your taxes.
Also, if he is able to support more than 50% of his needs through the new job then you cannot claim him as your dependent.
- In case of Social Security Disability Benefit
A number of Americans with disabilities enter into the Social Security Disability Program every day.
The condition is that your parent must have a disability or a medical condition that enables them to work. Your parent can make use of this benefit until he is back to a normal state or has reached his retirement age.
In addition, your parent, cannot file a joint tax return with his or her spouse unless it is filed only to claim a refund of withheld income tax or estimated tax paid. This is as stated in the IRS website.
2. Support Criteria
During the tax year, you must have provided support for more than half of your parents expenses if you want to claim them as your dependent.
You need to calculate the expenses considering various factors and come to a conclusion.
You can consider the market value of the room your parent stays in.
The calculations can be based on the current rent that a tenant pays in a similar circumstance in your area.
It is not compulsory that they stay with you but you need to have a comprehensive evaluation of your spending on their livelihood.
For instance, you can consider the expense of food, utilities, general use, medical bills etc.
One thing to understand is that, even if your parents has a small source of income it does not matter as a far as you are taking care of your parent.
Under the support criteria, it is checked whether the expenses you have done is more than your parent’s income.
For example, if your parent is earning a small amount (say $300) through Social Security and using it to pay the rent, and you are responsible for all other expenses of his livelihood which is more than the amount he is earning, then you both are eligible under support criteria.
3. Foster Parent Criteria
If the parents you want to claim are your foster parents, they must have lived with you for the entire calendar year as a member of your household.
You can even claim an elderly relative as well.
Please go through the IRS website for more details on this.
4. Residency Criteria
The IRS also has few residency requirements to be satisfied. In order that you can claim your parent as a dependent on your taxes, your parents must:
- Be a legal US Citizen
- Be a U.S. National
- Be a U.S. Resident Alien
- Be a Resident of Canada or Mexico
They may not live with you all year if they are your biological parent but in case if they are your foster parents then the Foster parent criteria applies along with the Residency Criteria.
Once you both satisfy the above criteria, you are eligible to go with the procedure. By supporting your parents in their old age, you are taking a step further in your relationship which will surely blossom your life.
In their age of loneliness, you are playing an important role in their life. We can understand that you will be supporting your parents because of your love for them but let us mention you the additional monetary benefits you can claim which will help you to reduce your expenses.
1. You can claim your medical expenses
Your parents are at the pinnacle of their age. Hence, medical expenses are natural and sometimes they are too heavy to face.
You can claim them as itemized deductions when they exceed standard deductions which are allowed to be claimed.
You need to satisfy one condition so that you can claim these medical expenses.
The total medical expenses incurred during the calendar year must be more than 7.5% of your gross income. The total medical expenses include the cost of doctor visits, medical equipment, hospital care and prescribed medicines.
The IRS completely understands the heavy burden of medical expenses and hence has made one exception for this reductions. You can deduct the medical expenses even if your parent does not satisfy the income criteria. But, you must provide support for more than 50% of their livelihood expenses.
2. Dependent Care Credit
If your parent is unable to take care of himself, he is eligible for dependent care credit.
Dependent care credit is a non-refundable tax credit which can be claimed by the taxpayers who are either taking care of the children or elderly parents.
There are also some additional conditions to be met which are given in the IRS website. Some of them are listed below.
- You need to have earned income through wages, salary, tips, and other compensation which is taxable as an employee or a self-employed personnel.
This means that you must provide care to your parent when you are working or looking for work.
- You must also identify your care provider clearly and mention his details like name,address, identifying number etc. You can file the payment of care only to the care provider’s name. It should be on your spouse’s name or anybody else’s name.
- You may not be eligible for the claim if you are married and your spouse files a different return.
So, your filing status must be single if you are not married or “filed jointly” if you are married.
3. Sharing your parent’s exemption with your sibling
In some cases, the children of a parent are eligible for support criteria in total. But they do not satisfy the criteria individually.
If you have a sibling and during a tax year if your parent is receiving support from both of you then both of you can claim for your parent.
The IRS allows both the siblings to claim in turns one after the other. The only condition is that the child must be able to support for at least 10% of the parent’s total support during the year.
If both of you agree for alternate claiming, then one of you, who is not claiming the parent, can give a written document duly signed mentioning that he is not claiming the parent for the current year.
So, these are all the details you need to take care in order to claim your parents on your taxes.
In order to claim the dependency of your parents, you need to satisfy the income, support, relationship (foster parents) and residency criteria.
Make sure to claim the additional benefits provided by the IRS like medical expenses claim, dependent care credit and sharing of the parent’s exemption.
When you were lonely your parents supported you. Now it is your turn to take care of them . Once you claim the dependency and if they are not staying with you make sure to visit them regularly.
When you don’t have enough time to spend with them encourage them to attend social gatherings and get them memberships of various social clubs.
Without a doubt the best thing you can do is just go for a walk with them. You can even take them to your office. They would be certainly proud of you.
Make out some time out of your busy day and be their friend. Many parents are not aware of how to use a smartphone. Teach them how to use modern technology.
The point is to make them happier which will in turn make them healthier. You may not be able to spend entire day or week with them but even a small amount of time will create cherishing moments for your parents.
When you are too busy, they understand that. They would never like you to sacrifice your work and spend time with them. They would never ask you to take out time. It is your who must begin!