Claiming Elderly Parents as a Dependent
If no one else claims your elderly parent as a dependent on your tax return, the Internal Revenue Service (IRS) authorises you to do so. You must also confirm that you are not an eligible dependent of another taxpayer if you seek to claim an exemption for your parent. Even if the taxpayer who can claim you as a dependant decides not to, this restriction remains in effect.
Satisfying the gross income test
Unlike declaring a child as a dependent, your elderly parent does not have to reside with you. When determining whether or not you can claim your parents, you must take into account their income. You cannot claim your parent as a dependent if they have taxable income of $4,300 or more. Do not include your parents’ social security payments or any tax-free pensions when calculating their taxable income. Dividends, capital gains from stock sales, interest received in a bank account, and other passive assets, such as income from rental properties they own, are all included in their taxable income.
Satisfying the support test
You must not only have a low gross income, but also contribute more than half (51%) of your parent’s financial support during the tax year. Meeting the support test’s standards necessitates a thorough examination of your parents’ expenses. The fact that your parent earns enough money during the year does not guarantee that the funds are used to sustain them. Rather than looking at the parent’s ability to pay, the support test looks at who really pays.
Even if your elderly parent puts thousands of dollars of tax-exempt income into a savings account each month, if they only use their Social Security benefits to pay $300 in monthly rent and you provide all other expenses totaling more than $300 each month, you will meet the support test requirements.
Satisfy the Residency and Relationship Test
In order to claim your parent as a “qualified relative” on your tax return, they must meet certain criteria. This implies that the individual is either your parent, in-law, or even a grandparent. This elderly parent must be biologically, via adoption, or by marriage connected to you (and thus the biological parent of your spouse). Your parent, in-law, or grandmother, unlike a non-relative, is not required to reside with you.
The IRS, on the other hand, requires that your elderly parent (or grandparent) meet at least one of the following criteria:
- Be a lawful citizen of the United States.
- Be a citizen of the United States of America
- Be a Resident Alien in the United States
- Be a Canadian or Mexican citizen.
Other Benefits to Claiming Your Elderly Parents
You may also be able to claim medical expenditures and the Child and Dependent Care Credit on your tax return if you claim your elderly parents.
Expenses of Medicine
If you paid for your parent’s medical care, you may be entitled to deduct those costs if you itemise deductions. Provided your parents do not meet the income requirements to be claimed as your dependant, you can deduct their medical expenditures if you give more than half of their support. Keep in mind that in order to claim these expenses in 2021, your total medical expenses must surpass 7.5 percent of your adjusted gross income.
Child and Dependent Care Credit
The Child and Dependent Care Credit is commonly thought of as a tax credit for sending your children to daycare. If you have children, you can only claim credit for sending them to daycare or summer camp when they are under the age of 13, but if they are disabled, there is no age limit.
A disabled senior parent is in the same boat. There is no age limit for receiving the credit if you can claim your disabled parent as a dependent. You may be eligible for a credit of up to $4,000 if you have to pay for care for an ageing parent who is disabled so that you can work.
The maximum amount that can be put into a dependent care flexible spending account, as well as the amount of tax-free employer-provided dependent care benefits, has been increased from $5,000 to $10,500 for tax year 2021.
Learn more: How to Use Your Tax Refund to Boost Your Retirement Savings