Claiming an Elderly Parent as a Dependent for Tax Purposes

Resumen
There are tax credits and deductions available for filers who provided financial support for their elderly parent (or other seniors), such as the Credit for Other Dependents and the Child and Dependent Care Credit. The taxpayer, senior, and financial support must all meet certain criteria to claim these credits. If any of them don?t meet those criteria, seniors who file on their own as non-dependents can also take certain deductions and credits, such as the Credit for the Elderly and Disabled. Using these tax credits and deductions will not impact an elderly individual?s current Medicaid enrollment nor future applications.

Criteria for Claiming a Dependent

There are three major criteria for claiming an elderly individual as a dependent:

1) The taxpayer must have provided at least half of the dependent?s financial support for the year.

To determine if this criteria is met, the taxpayer compares how much support they provided to the senior to how much support the senior received from all sources, including their own funds. It?s important to note that income received is not the same as support received. For example, your parent collected $2,500 in Social Security benefits and $500 in interest during the tax year, and they spent $1,500 on lodging and $500 on transportation. So, even though your parent received $3,000 during the year, they only spent $2,000 in support, which means that if you spent more than $2,000 in support of your parent during the tax year, you can claim them as a dependent.

To calculate the amount spent in total support, an individual adds up how much they spent providing the senior with necessities. IRS Publication 501 (2022), Dependents, Standard Deduction, and Filing Information includes the following items when it comes to providing support for dependents: ?food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.?

The cost of lodging is the fair rental value of the room, apartment or house that is provided for the senior, including utilities and furnishings. Fair rental value is what a stranger would pay in rent for the same lodgings. If the senior lives with the taxpayer, food support costs are determined by adding up total food expenses for the house for the year and finding the appropriate ratio for the senior. For example, your parents live with you, your husband and your two kids, for a total of 6 people in the household. If total food expenses for the year are $12,000, the food expenses for each of your parents is 1/6 that total, or $2,000. This example leads to another important point ? married seniors must be treated separately when it comes to being claimed as dependents. This means that taxpayers must show they provide more than half the support for each individual parent, and not the couple as a whole. The calculations could vary by parent because perhaps one receives more Social Security benefits than the other, for instance.

There is an important exception to this first criteria ? the Multiple Support Declaration. If several family members contribute to support of an individual, and that family support is more than 50% of the individual?s total support, one of the family members can claim the individual as dependent. So, in some of these situations, it is possible that the family member who is claiming the dependent actually provides less than 50% of the total support.

2) The dependent must be related to or have lived with the taxpayer for one full year.

The following relatives do not have to live with taxpayers in order to meet this second criteria and be claimed as dependents: parents, step parents, grandparents, siblings, half siblings, step siblings, nieces and nephews (including from half siblings), aunts, uncles, or any other direct ancestors, as well as children, stepchildren and foster children, and any direct descendants of them (like grandchildren). If the taxpayer is married and files a joint return, those same relatives of the spouse can also be claimed as dependents. And any of those relationships that were established by marriage aren?t considered ended by death or divorce for these purposes.

Some notable exceptions from the above list of relatives ? foster parents and foster siblings are not included. However, just like any other person, foster parents or siblings can be claimed as a dependent if they live with the taxpayer for the full tax year (and meet the other criteria mentioned above). If the dependent or taxpayer had temporary absences from the home for any of the following reasons, the IRS will still consider them to be members of the same household for the tax year: illness, education, business, vacation, military service, detention in a juvenile facility, or, in some cases, placement in a nursing home. And if the elderly individual living in the taxpayer?s home dies during the tax year, they can still be claimed as a dependent as long they lived in the home until their death.

3) The dependent?s income for the tax year must be below the federal gross income limit ($4,400 for tax year 2022).

This third major criteria for claiming a dependent is as straightforward as it sounds. Gross income is simply all income an individual receives in the form of money, goods, property, and services that aren?t exempt from tax.

There are three other notable requirements for claiming someone as a dependent:

First, you can not claim someone as a dependent if you or your spouse can be claimed as a dependent. The only exception to this is if the person who can claim you as a dependent files a return only to claim a refund of income tax withheld or estimated tax paid.

Second, you can not claim an individual as a dependent if that individual is married and files a joint return. The only exception to this is if the individual you want to claim as a dependent and their spouse filed their joint return only to claim a refund of income tax withheld or estimated tax paid.

Third, dependents must be a U.S. citizen, resident alien, or national, or a resident of Canada or Mexico.

Tax Credits and Deductions for Taxpayers with Elderly Dependents

Filers can lower their taxes by claiming an elderly dependent in multiple ways ? Credit for Other Dependents, Federal Child and Dependent Care Credit, State Child and Dependent Care Credit, Earned Income Tax Credit, and medical and dental expense deductions. All of these options are explained below.

Federal Child and Dependent Care Credit
Taxpayers can claim the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual to enable the taxpayer (or their spouse if married) to work or look for work. The way for an individual to be qualifying which is relevant to this article is if 1) the individual was the taxpayer?s dependent, 2) the individual lived with the taxpayer more than half the tax year, and 3) the individual was physically or mentally incapable of self-care. According to IRS article Topic No. 602, Child and Dependent Care Credit, ?An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs or requires the full-time attention of another person for the individual’s own safety or the safety of others.?

The amount of the Child and Dependent Care Credit depends on the amount paid to the care provider and the adjusted gross income of the taxpayer. The maximum credit amount for tax year 2022 is $3,000 for one qualifying individual, or $6,000 for two or more qualifying individuals.

The care provider can not be the taxpayer?s spouse (if married), their child under the age of 19, or another dependent whom the taxpayer or their spouse could claim on their return. The care can be delivered inside or outside of the home. If the taxpayer does hire someone to come to their home and provide care, they may become a ?household ?employer? in the eyes of the IRS and may need to pay Social Security, Medicare, and unemployment taxes for the caregiver/employee.

How to file: Complete Form 2441, Child and Dependent Care Expenses, and attach to Form 1040.

State Child and Dependent Care Credit
Some states allow taxpayers to deduct a percentage of their Federal Dependent Care Tax Credit from their state returns. So, if the taxpayer?s state offers 50% of the Federal amount, and the taxpayer?s Federal Dependent Care Tax Credit is $3,000, they will have a $1,500 State Dependent Care Tax Credit as well. Some states have a range of percentages that are based on the taxpayer?s income.

For the tax year 2022, the District of Columbia and 22 states offer State Dependent Care Tax Credits: Arkansas, California, Colorado, Delaware, Georgia, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Nebraska, New Mexico, New York, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, and Vermont.

Earned Income Tax Credit
Claiming a dependent can also qualify taxpayers for the Earned Income Tax Credit (EITC). Details for EITC eligibility are outside the scope of this article, but it is meant for low- to moderate-income individuals and families. More information on the EITC can be found on this IRS webpage.

Credit for Other Dependents
Taxpayers with senior dependents can claim the Credit for Other Dependents. For 2022, the maximum amount of the credit is $500. Filers can claim this Credit in addition to the Federal Child and Dependent Care Credit, their State Child and Dependent Care Credit, and the Earned Income Tax Credit. More information on the Credit for Other Dependents can be found on this IRS webpage.

Medical and Dental Expense Deductions
Taxpayers may also deduct some of the medical and dental expenses they paid for dependents. As of 2022, most taxpayers can deduct the total amount of the medical and dental expenses they paid for themselves and their dependent that exceeds 7.5% of their adjusted gross income (AGI).

It?s important to note that medical and dental expenses paid for dependents can be used for the Child and Dependent Care Credit or as a medical deduction, but the same expenses can not be used for both. If the taxpayer has paid enough expenses for their dependent, however, they can use some expenses to claim the Child and Dependent Care Credit, and other expenses as deductions. It is recommended they use the maximum amount of expenses allowed for either the Credit or deductions before assigning expenses to the other.

For a complete list of medical and dental expenses that can be used as deductions, see IRS Publication 502, Medical and Dental Expenses. In general, however, the following expenses can be deducted:

? Medical fees from doctors, dentists, laboratories, hospitals, assisted living residences, and home health care providers
? Transportation costs to and from medical care, including ambulance fees
? Premiums for health insurance and qualified long term care insurance
? Medically-necessary home modification expenses, such as for putting in a wheelchair ramp
? Prescription medication costs
? Personal care items such as disposable briefs or prescribed nutritional supplements for a specialized diet
? Room and board for assisted living if the state deems the dependent requires this type of living situation after an evaluation of their ability to complete the Activities of Daily Living (mobility, bathing, dressing, eating, toileting), as well as their cognitive and behavioral conditions

How to File: Medical and dental deductions are reported on Schedule A (Form 1040).

Bottom line: Taxpayers are advised to use tax calculators or consult with tax advisor to see which credits or deductions they can claim, and which ones would lead to the greatest reduction of their taxes.

Tax Credits and Deductions for Seniors Filing Their Own Taxes

Seniors age 65 and over who do not qualify as dependents and must file their own taxes can claim the Credit for the Elderly and or the Disabled, if their income meets certain limits. They can also use their own medical and dental expenses as deductions.

Credit for the Elderly and or the Disabled
To qualify for this credit, seniors age 65 and older must meet an adjust gross income limit that ranges from $25,000 / year to $12,500 / year (as of 2022), depending on their filing and marital status; AND the total of their nontaxable Social Security income, and other nontaxable pensions, annuities, or disability incomes must meet limits that range from $7,500 / year to $3,500 / year, depending on their filing and marital status. To find the exact limits for specific situations, see IRS Publication 524 (2022), Credit for the Elderly or the Disabled.

The credit ranges from $3,750 to $7,500 as of 2022. The exact amount depends on several factors, including filing status, marital status, adjustable gross income, and taxable disability income.

How to File: Complete Schedule R (form 1040) Credit for the Elderly or Disabled, and attach it to Form 1040-SR, U.S. Tax Return for Seniors.

Medical and Dental Expense Deductions
Seniors who file their own taxes are allowed to deduct some of their medical and dental expenses. In general, they will be able to deduct the total amount of the medical and dental expenses they paid for themselves that exceeds 7.5% of their adjusted gross income (AGI), as of 2022.

IRS Publication 502 has a complete list of medical and dental expenses that can be deducted, which includes the following:

? Medical fees from doctors, dentists, laboratories, hospitals, assisted living residences, and home health care providers
? Transportation costs to and from medical care, including ambulance fees
? Premiums for health insurance and qualified long term care insurance
? Medically-necessary home modification expenses, such as for putting in a wheelchair ramp
? Prescription medication costs
? Personal care items such as disposable briefs or nutritional supplements for a specialized diet
? Room and board for assisted living if the state deems the dependent this type of living situation after an evaluation of their ability to complete the Activities of Daily Living (mobility, bathing, dressing, eating, toileting), as well as their cognitive and behavioral conditions.

How to File: Medical and dental deductions are reported on Schedule A on Form 1040-SR.

Medicaid Consequences for Elderly Parents Who Are Claimed as Dependents

There are no Medicaid consequences for someone being claimed as a dependent. Medicaid eligibility, both financial and functional, will remain in tact for beneficiaries or applicants who are senior dependents. However, there may be some tax consequences for a senior who is being claimed as a dependent.

First, a married person who files a joint return can not be claimed as a dependent, so the senior must be single or married and filing separately to be eligible to be claimed as a dependent.

Second, being claimed as a dependent may require the senior to file a tax return they otherwise would not have needed to file. Single individuals over the age of 65 who are non-dependents must file a tax return if their gross income is $14,700 or more, as of tax year 2022. By comparison, single individuals who are over age 65 and dependents must file a tax return if their unearned income is more than $2,900 (or more than $4,650 if they are 65+ and blind), or their gross income was more than the larger of $2,900 or their earned income plus $2,150. These figures are all from tax year 2022.

For married couples who are both over the age of 65, non-dependents and filing jointly, they only have to file a tax return if their income is $28,700 or more. If just one spouse is over 65, but both are non-dependents, the threshold for filing is $27,300 or more. By comparison, married people who are dependents must file separately, so their filing threshold is a gross income of only $5 or more. This is the same threshold for non-dependent married people who are filing separately. Again, all these figures are from tax year 2022.