The Internal Revenue Service (IRS) allows you to claim your elderly parent as a dependent on a tax return as long as no one else does. If you choose to claim an exemption for your parent, you must also ensure that you are not an eligible dependent to another taxpayer. This restriction is effective even if the taxpayer who can claim you as a dependent chooses not to do so.
Satisfying the gross income test
Unlike claiming a child as a dependent, it is not necessary that your elderly parent lives with you. However, you do have to consider your parent’s income when figuring out whether you can claim them. If your parent has taxable income of $4,300 or more in 2021, you cannot claim them as a dependent on your taxes. When evaluating your parent’s taxable income, do not include their social security payments and other tax-exempt pensions. Their taxable income does include, however, dividends, capital gains from the sale of stock, interest earned in a bank account and other passive investments such as income from rental properties they own.
Satisfying the support test
Not only must your parent have minimal gross income, but you must also provide more than half (51%) of their financial support during the tax year. Satisfying the requirements of the support test requires a comprehensive evaluation of your parent’s expenses. The fact that your parent receives sufficient income during the year does not necessarily mean the funds are used for their support. The support test looks to who actually pays rather than the parent’s ability to pay.
For example, if your elderly parent only uses their Social Security benefits to pay $300 in monthly rent and you provide all other expenses that total more than $300 each month, then you will satisfy the requirements of the support test even if your parent puts thousands of dollars of tax-exempt income into a savings account each month.
Satisfying the Residency and Relationship Test
In order to claim your parent on your tax return they must satisfy the requirements as a “qualifying relative”. This means that the person must be your parent, in-law, or even grandparent. This elderly parent must be related to you biologically, by adoption, or via marriage (and thus the biological parent of your spouse). Unlike a non-relative, your parent, in-law or grandparent does not have to live with you.
However, the IRS does require that your elderly parent (or grandparent) meet one of the following requirements:
- Be a legal United States Citizen
- Be a United States National
- Be a United States Resident Alien
- Be a resident of Canada or Mexico
Other Benefits to Claiming Your Elderly Parents
Other benefits to claiming your elderly parents may include claiming medical expenses and the Child and Dependent Care Credit on your tax return.
Medical Expenses
If you paid for your parent’s medical care, you may be able to claim their medical expenses that you paid if you can claim itemized deductions. You can even deduct your parent’s medical expenses if they do not meet the income requirement to be claimed as your dependent as long as you provide more than half of their support. Keep in mind that your total medical expenses will have to exceed 7.5% of your adjusted gross income to claim these expenses..
Child and Dependent Care Credit
Most people think of the Child and Dependent Care Credit as a credit you can get for taking your kids to daycare. When you have kids you can only claim the credit for sending them to daycare or summer camp when they are under 13, but there is no age limit if they are disabled. The same goes for a disabled elderly parent. If you can claim your parent who is disabled as a dependent there is no age limit for claiming the credit. If you have to pay for care for your elderly parent who is disabled so that you can work you may be able to claim a credit up to $4,000 for 2021.
Also for tax year 2021, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits was doubled from $5,000 to $10,500.
For tax year 2022, the Child and Dependent Care Credit reverts back to pre-American Rescue Plan law and is up to $1,050 for one dependent and up to $2,100 for two or more dependents.
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