Americans who financially support an elderly parent may be able to claim their loved ones as dependents on tax returns, but there are several factors that determine whether a taxpayer can do so under Internal Revenue Service rules.
With the tax filing deadline upon us, the professionals at TurboTax have provided a breakdown for taxpayers wondering if they may claim an exemption for a parent on their taxes.
Here are the questions to answer regarding eligibility:
What qualifies a taxpayer to claim a parent as a dependent?
There are a series of qualifications a taxpayer must meet in order to claim an elderly loved one.
In order to claim a parent as a dependent under IRS rules, the taxpayer cannot be an eligible dependent to another taxpayer, even if the person who could claim them does not do so.
Taxpayers must also be sure they are the only individual claiming their loved one, as only one person can claim a specific dependent.
Taxpayers must provide more than half the costs for the parent's support in order to claim the parent. These include everyday living expenses, such as housing, food, clothing and medical expenses.
What determines whether a parent qualifies as a dependent?
Once taxpayers determine they can claim a parent under the conditions outlined above, they must take a look at whether the loved one is truly a dependent under IRS guidelines.
"Another plus to supporting your elderly parents is that, unlike a child or friend, they don’t need to live with you to claim them as a dependent," says Lisa Greene-Lewis, CPA and a tax expert with TurboTax.
In fact, they don't even have to live in the same country.
To qualify as a dependent, the parent must be either a legal U.S. citizen, a U.S. national, a U.S. resident alien or a resident of Canada or Mexico. And the parent must have a Social Security number.
"When you are claiming a dependent, the No. 1 thing you want to remember is to gather the correct Social Security number for them," says Greene-Lewis. "You can claim the deductions and credits mentioned, but you have to have the correct Social Security number for your dependent."
A parent does not have to be a biological relative in order to qualify as a dependent. Adoptive parents or grandparents also qualify.
If a taxpayer covers more than 50% of the living expenses for a spouse's parent, the taxpayer may be able to claim an elderly in-law as a dependent under this rule, too.
In order to be claimed as a dependent, a parent must not have earned $4,300 or more in taxable income in 2021. While Social Security income is not taxable, it's important to note that other sources of income are taxable, such as dividends, capital gains or income from real estate.
What if I provide support but not all qualifications are met?
There are other tax benefits available for folks who provide financial support to a parent but might not check all the boxes outlined above.
If a taxpayer pays for the medical care of a parent, the taxpayer may deduct those expenses (including mileage to take a parent to the doctor) if the taxpayer claims itemized deductions, even if the parent makes too much income to qualify as a dependent.
"The Child and Dependent Care Credit is not only for your kids you take to day care or summer camp," Greene-Lewis said. "If you support a disabled parent and pay for care so you can work, you may be able to claim a credit up to $4,000."
TurboTax notes that, for the 2021 tax year, the maximum amount that can be contributed to a dependent care flexible spending account was more than doubled to $10,500.
"If you are self-employed and had to take care of your parent because they had COVID, you can claim the Qualified Sick and Family Leave Credit to make up for the income you were unable to earn during those days away from work," Greene-Lewis noted.