Family caregivers contribute both their time and money to help support those they love. When tax time rolls around, it’s important to understand that you may be able to claim your care recipient as a dependent on your income taxes and lower your tax bill.
Fundamental Rules for Claiming a Dependent
To claim an aging relative as your dependent, there are basic criteria that you, the taxpayer, must meet and criteria that your potential dependent must meet.
- You can’t claim any dependents if you (or your spouse if filing jointly) could be claimed as a dependent by another taxpayer.
- You can’t claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.
- You can’t claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.
- You can’t claim a person as a dependent unless that person is your qualifying relative.
Determining if an Elderly Loved One Is a Qualifying Relative
There are four additional tests your care recipient must meet to be considered your “qualifying relative.”
- They cannot be the qualifying relative of any other taxpayer.
- They either must be related to you by blood or marriage or must live with you all year as a member of your household (and your relationship must not violate local law). However, a person cannot be your qualifying relative if they were your spouse at any point during the tax year.
- Their gross income for the year must be less than $4,200 for tax year 2019.
- You must provide more than half of their total support for the year.
The Relationship or Member of Household Test
Direct relatives do not have to live with you to count as a qualifying relative for tax purposes. Examples include your mother, father, grandparent, stepmother, stepfather, mother-in-law, father-in-law, aunt, uncle, brother, sister, stepsibling, or half sibling.
If you wish to claim a non-relative as a dependent, such as a friend, they must have lived with you for the entire year to count as a qualifying relative in the eyes of the IRS. A non-relative is still considered to be living with you even if they spend time in the hospital or reside in a nursing home indefinitely. These scenarios are considered temporary absences, just like vacations or business trips.
The Gross Income Test
The IRS defines gross income as “all income in the form of money, property, and services that isn’t exempt from tax.” If a senior’s only income consists of Social Security retirement benefits, then they are not considered taxable. However, if they have other income from sources like retirement accounts, pensions, interest and dividends, then a portion of their benefits may be taxable.
IRS Publication 915 can help you determine if a loved one’s Social Security benefits are taxable.
The Support Test
You must have provided over half of your potential dependent’s financial support for the year, including food, housing, clothing, medical expenses, transportation, etc. If the person lives with you, you must calculate the fair rental value of their accommodations. This is the amount you could expect to charge a stranger for the same kind of lodging and might include a reasonable percentage of your mortgage, utilities expenses, use of furniture and other household costs in determining the level of support you provide.
Again, direct relatives do not have to live with you to be claimed as a dependent. Whether they live in their own home, in an assisted living facility or in a nursing home, the expenses you cover for their support at those locations count toward the IRS requirement.
To calculate your amount of support, compare your total contributions for the calendar year to the total amount of support your loved one received from all sources for the year (including tax-exempt income). This latter figure includes support they provided from their own personal funds, but the IRS stipulates that their own funds aren’t considered support unless they’re actually spent on support. Caregivers can use the IRS Worksheet for Determining Support to break down this financial comparison.
Shared Caregiving Responsibilities and Multiple Support
Often more than one person is involved in providing care and support for an elderly loved one. For example, you, your brother and your sister help support your mother. Together, you three provide more than half (60 percent) of her support. You provide 25 percent, your sister provides 25 percent and your brother provides 10 percent. The IRS rules state that an individual must provide more than half of a person’s support to claim them as a dependent, but cases like yours where several people contribute are treated differently.
According to the IRS, a multiple support agreement may be needed “when two or more persons, each of whom would be able to claim the person as a dependent but for the support test, together provide more than half of the person’s support. When this happens, you can agree that any one of you who individually provides more than 10 percent of the person’s support, but only one, can claim that person as a dependent. Each of the others must sign a statement agreeing not to claim the person as a dependent for that year.”
So, continuing with this example, your brother does not qualify to claim your mother as a dependent because he does not provide enough of her support. Both you and your sister qualify to claim Mom as a dependent, but you must decide between you who will do so since she can only be claimed once. If it’s decided that you will claim Mom, then your sister will need to sign a statement waiving her right to claim Mom as a dependent for that tax year (you’d save this for your own records), and you will need to file Form 2120 (Multiple Support Declaration) along with your tax return.
If you collaborate with others to support a relative, make sure you are all on the same page so you don’t run into trouble with more than one person claiming the individual.
How Claiming a Dependent Can Affect Your Taxes
You may qualify for tax credits, such as the Credit for Other Dependents and/or the Child and Dependent Care Credit, if the criteria above are met and you can claim your loved one as your dependent. Additionally, if you itemize your tax deductions instead of taking the standard deduction, you may be able to deduct your loved one’s medical expenses and dental expenses.
Claiming your care recipient as your dependent can minimize the taxes you owe and help you recoup some of the outlays you have made on their behalf. If you are unsure about what credits and deductions you are eligible for, it is always best to consult a qualified tax professional for assistance preparing your tax return.
For more information on claiming an elderly relative as a dependent, see IRS Publication 501: Exemptions, Standard Deductions and Filing Information.
Sources: Dependents, Standard Deduction, and Filing Information (https://www.irs.gov/pub/irs-pdf/p501.pdf); Social Security and Equivalent Railroad Retirement Benefits (https://www.irs.gov/pub/irs-pdf/p915.pdf); About Form 2120, Multiple Support Declaration (https://www.irs.gov/forms-pubs/about-form-2120); Child Tax Credit and Credit for Other Dependents (https://www.irs.gov/pub/irs-pdf/p972.pdf); Child and Dependent Care Expenses (https://www.irs.gov/pub/irs-pdf/p503.pdf); Topic No. 502 Medical and Dental Expenses (https://www.irs.gov/taxtopics/tc502)