If your elderly parents fall and get injured, have health issues, or suffer from dementia and cannot live alone, what should you do? In the United States, according to data from “Senior Living,” the median annual cost of assisted living facilities is $73,548, which is approximately $6,129 per month. Many people cannot afford this, which may mean that parents might have to move in with their adult children.
The American Association of Retired Persons (AARP) reports that there are 53 million people in the United States currently caring for elderly family members. Caring for parents is not only challenging but also expensive. If you are caring for your parents, you may be able to claim them as dependents for tax relief or deductions. However, the Internal Revenue Service (IRS) has stringent criteria that must be met for parents to qualify as your dependents.
When filing taxes in the United States, the IRS recognizes two main types of dependents: “qualifying child” and “qualifying relative.” The “qualifying child” has age restrictions (such as being under a certain age). The “qualifying relative” has no age limit and can be of any age. However, if someone is considered your “qualifying child” or the “qualifying child” of another taxpayer, they cannot be considered your “qualifying relative.”
To be classified as a dependent, one must meet one of two relationship tests: either the person must have lived with you for the entire year and be a member of your household, or they must have a specific familial relationship with you. This is known as the “qualifying relative” test. Additionally, the person cannot be claimed as a “qualifying child” by you or another taxpayer. In other words, double claiming is not allowed.
Once the initial threshold (not being a “qualifying child”) is passed, the IRS will conduct a relationship test. This means the person must have lived with you for the entire year and be a member of your household, or have a qualifying relationship such as a parent, sibling, in-law, grandparent, etc.
The main distinction is that if the person is a direct or close relative, they do not need to live with you for the entire year. However, if they are not considered a relative by the IRS, such as a friend or partner, they must reside with you for the whole year to qualify.
The “income test” and “support test” often confuse taxpayers, but they are interrelated. When claiming elderly parents as dependents, the IRS will conduct both the “income test” and the “support test.” While these tests have different rules, both must be passed for the parents to qualify as dependents.
According to IRS regulations, the total income limit to claim a parent as a dependent is $5,050 for 2024 and $5,200 for 2025. Social Security benefits are typically not included in total income unless they are considered taxable income. For example, if your parents’ only income is untaxed Social Security benefits, that income will not count towards the $5,200 limit in 2025.
However, if your parents have additional income from retirement pensions, dividends, wages, etc., causing their income to be high enough to make a portion of their Social Security benefits taxable, that taxable portion must be included in the $5,200 total income limit. In other words, Social Security benefits usually do not count towards their total income unless there is enough other income to make it taxable.
After passing the “income test,” the next step is the “support test,” which can be more confusing. Even if your parents’ Social Security benefits are untaxed, they must be considered in the “support test.” You must provide over half of your parents’ total support. The IRS will count all available Social Security benefits that can be used for spending in their “self-support.”
For example:
– Your mother receives $10,000 in Social Security benefits.
– You pay $12,000 for her food, housing, medical expenses, etc.
– The total support is $22,000.
– You paid $12,000, which exceeds half.
As a result, she passes the “support test.”
If your parents pass all the aforementioned tests, they can be considered your dependents.
Once your parents meet the IRS’s dependent tests, you can itemize deductions for the medical expenses you paid for them (to receive certain tax offset benefits). However, there are some flexible provisions from the IRS in certain situations.
According to IRS guidelines, even if someone does not exactly qualify as a dependent, you can still deduct medical expenses you paid for them if they fail to qualify for one of the following reasons:
– Their income exceeds the specified limit for claiming them as a dependent.
– They filed a joint tax return.
– You (or you and your spouse, for joint filers) can be claimed as a dependent by another taxpayer.
In other words, if they fall under any of these three exceptions, you can still deduct the medical expenses you paid.
As per IRS rules, you can only deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) for the tax year.
This deduction applies only to unreimbursed expenses not covered by insurance, but you can deduct insurance premiums you paid.
If you are bearing various costs for your parents and claim them as dependents, it could have tax advantages for you. However, your parents must meet the eligibility criteria. Once they pass the dependent tests, you can begin deducting the expenses you incurred for their care.