Can Caregiving for Your Parents Get You a Tax Break?

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Many adult children eventually experience a role reversal and become caregivers for their parents. The responsibilities of this range from helping an aging parent with housework and errands to offering financial support and guiding medical care or even sharing their home. Nearly 66 million Americans (31 percent of U.S. households) provide some form of care to an ill or disabled family member, according to the National Alliance for Caregiving.

Family caregiving is a labor of love, and it can affect one’s social life, emotional health and financial well-being. It can also be prolonged: Almost 57 percent of caregivers today have been providing care for more than three years, according to agingcare.com. And while some long-term care policies provide monetary stipends for caregivers, there aren’t many ways to buffer the financial hit. One option, however, is for caregivers to claim the parent or relative in their care as a dependent on their taxes and possibly get an exemption or tax credit. 

What makes someone a dependent

To qualify for a tax break on your federal or state taxes, your relative must qualify as a dependent. Yet this doesn’t necessarily mean they live under your roof. A dependent is defined in several ways:

Income of a dependent

A relative counts as a dependent only if he or she earned less than $4,050 in gross income during the year (as of 2017). Earnings in this context can come from all sources, such as pensions, dividends, or required minimum distributions. But non-taxable income, such as Social Security benefits, isn’t included in this amount, so if a parent relies largely on Social Security then they could conceivably qualify as a dependent.

Financial aid for a dependent

You must provide at least half of your relative’s financial support. This includes, if they live with you, the fair market value of their room in your home. If relevant, you can also factor in food, utilities, transportation, other general living expenses, and medical bills.

Citizenship and living situation

The person must be a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico. And if your relative does not live with you, he or she must be on a specific list from the IRS. Roughly 30 relationships are on this list, including nieces, nephews, aunts, uncles, stepsiblings, and siblings-in-law.  

Sole dependency

You cannot claim your parent as a dependent if your sibling or another relative is also doing so.

How claiming a dependent can help

If your parent meets the above requirements and you claim him or her as a dependent, the tax benefits aren’t a one-size-benefits-all matter. Instead, there are several ways in which helping out can help lower how much you owe in taxes:

  • For the 2017 tax year, which you’ll file in April 2018, you can claim all or part of the dependent exemption of $4,050 per eligible dependent. For 2018 and beyond, this exemption was eliminated as part of the Tax Cuts and Jobs Act, but a $500 credit for dependents 17 and older was added.
  • The new tax bill did not affect the dependent care credit, which can help offset some of the costs of your parent’s care while you’re at work. Depending on your income, this credit can be up to 35 percent of your qualifying expenses. For this deduction to be valid, your parent must have lived with you for at least half of the tax year and must be mentally or physically incapable of caring for themselves.
  • You can also take advantage of a break that enables you to fund a flexible spending account with up to $5,000 in pretax dollars (each year) for your loved one’s care (for example, adult day care expenses). And you can use funds from your health care FSA to pay for your dependent parent’s medical costs, even if they’re not included on your health insurance plan.   
  • If your out-of-pocket medical expenses (not covered by an FSA) are above 7.5 percent of your adjusted gross annual income, you’re eligible for an additional deduction. So if you make $50,000, you could claim a tax cut on anything north of $3,750.  
  • Finally, if you are unmarried and have a qualifying dependent, you can file taxes as “Head of Household,” a status that has lower tax rates than filing as single. If your relative lives with you, you must pay for more than half the expenses of your shared home. If your relative lives elsewhere (including a skilled nursing facility), you can use this filing status if you pay at least half of the related costs.

Your situation may vary—as may your tax filings between 2017 and subsequent years—so be sure you consult with your CPA or tax advisor before claiming deductions. Not only will they let you know what’s legit, they may be aware of other options to help you reduce your tax burden even more.

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