Claiming an Elderly Parent and Others as Dependents for Tax Purposes

Michael is 82 and can’t live on his own anymore, so he moves in with his daughter Lauren. Since she is covering all of Michael’s living expenses, Lauren assumes she can claim him as a dependent when she does her taxes. But when she gets around to filing in April, she is overwhelmed by all the information she’ll need to actually claim Michael.

She’s not sure how much income he has or how much of it he uses on himself. She knows her bills have gone up since he moved in, but she’s not sure exactly how much they have gone up or exactly where the extra money is going. She knows her sister gives their father some money, but Lauren doesn’t know how much or what he spends it on. And she’s not sure how claiming Michael as a dependent will affect his Medicaid coverage.

There are actually multiple tax credits and deductions available for people like Lauren who provide financial support their elderly parent or other seniors. There are also multiple tax credits and deductions for seniors who aren’t claimed as a dependent. Utilizing any of them is easier if you prepare ahead of time, which is just what you’re doing by reading this article.

 Are you struggling to care for an elderly relative? Do they need assistance with their Activities of Daily Living? Learn more about Medicaid long term care eligibility and benefits.

 

Requirements for Claiming an Elderly Dependent

There are three major requirements for claiming an elderly individual as a dependent for tax purposes:

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

To see if they meet this requirement, the taxpayer compares how much support they gave to the senior to how much support the senior received from all other sources, including their own funds. It’s important to note that income received is not the same as support received. For example, say 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. This means you would need to spend $2,000 or more in support of your parent during the tax year to 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 lists the following items as countable 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 portion for the senior. For example, imagine both of 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, for example, one might receive more Social Security benefits than the other.

There is an important exception to this first requirement – the Multiple Support Declaration. If several family members contribute to the 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 can be claimed as dependents without needing to live with the taxpayer claiming them: 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.

It should be noted that foster parents and foster siblings are not included in the list of relatives who can be claimed as dependents without needing to live with the taxpayer claiming them. 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 requirements mentioned in this article. 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 ($4,700 for tax year 2023).

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.

 

Credits and Deductions for Elderly Dependents

As we mentioned above, there are multiple ways lower your taxes by claiming an elderly dependent. These include the Federal Child and Dependent Care Credit, State Child and Dependent Care Credit, Earned Income Tax Credit, Credit for Other Dependents and medical and dental expense deductions. There are general overviews of these options below, but before we get there let’s review the difference between a tax credit and a tax deduction.

A tax credit is applied directly to the taxes you owe. For example, you owe $3,000 in federal taxes, but you have a $500 federal credit, so you only owe $2,500. A tax deduction, on the other hand, lowers your taxable income. For example, you earned $60,000, but have a $2,000 tax deduction, so your taxable income is actually $58,000.

 

Federal Child and Dependent Care Credit

You can claim the Child and Dependent Care Credit if you paid for the care of a qualifying individual so you (or your spouse if married) could work or look for work. An individual is qualified if they meet these three criteria: 1) the individual is 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 as of tax year 2023 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 you do hire someone to come to your home and provide care, you 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 you to deduct a percentage of your Federal Dependent Care Tax Credit from your state returns. So, if your state offers 50% of the Federal amount, and your Federal Dependent Care Tax Credit is $3,000, you will also have a $1,500 State Dependent Care Tax Credit. Some states have a range of percentages that are based on the taxpayer’s income.

As of tax year 2023, the District of Columbia and 24 states offered State Dependent Care Tax Credits: Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Iowa, 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 senior dependent can also qualify you for the Earned Income Tax Credit (EITC). Details for EITC eligibility are outside the scope of this article, but it is meant for individuals and families with limited to moderate financial resources. For more information on the EITC, click here.

 

Credit for Other Dependents

Taxpayers with senior dependents can also claim the Credit for Other Dependents. The maximum amount of the credit is $500 as of tax year 2023. You can claim this credit in addition to the Federal Child and Dependent Care Credit, your State Child and Dependent Care Credit and the Earned Income Tax Credit. For more information on the Credit for Other Dependents, click here.

 

Medical and Dental Expense Deductions

If you paid medical or dental expenses for your senior dependent, you can also use some of those expenses as deductions. As of 2023, 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 enough expenses, however, they can use the Child and Dependent Care Credit, and then use other expenses as deductions. It’s recommended you 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, go to 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 for safety and accessibility, such as adding a wheelchair ramp
• Prescription medication
• Personal care items such as disposable briefs or prescribed nutritional supplements for a specialized diet
• Room and board for assisted living if the state determines the dependent needs 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.

 

Credits and Deductions for Elderly Non-Dependents

If your elderly parent or another senior in your life does not qualify as a dependent, there are credits and deductions they can use if they are required to file taxes. Seniors age 65 and over who are not dependents only have to file if their gross income is $15,700 or more. If they do have to file, they can claim the Credit for the Elderly and or the Disabled, if their income meets certain limits, and 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 2023), 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 $3,750/ year, depending on their filing and marital status. To find the exact limits for specific situations, go to IRS Publication 524, 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 2023.
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 for safety and accessibility, such as adding a wheelchair ramp
• Prescription medication
• Personal care items such as disposable briefs or nutritional supplements for a specialized diet
• Room and board for assisted living if the state determined the dependent needs 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 Eligibility Impacts for When Claiming Dependents

Claiming a senior as a dependent does not affect their Medicaid coverage. Their eligibility status and benefits will remain the same if they are claimed or not. However, there are some tax rules and implications that may come into play if you want to claim a senior 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 $15,700 or more, as of tax year 2023. By comparison, single individuals who are over age 65 and dependents must file a tax return if their unearned income is more than $3,100 (or more than $4,950 if they are 65+ and blind), or their gross income was more than the larger of $3,100 or their earned income plus $2,250. These figures are all from tax year 2023.

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 $30,700 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 2023.

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