Many older children these days now look after and take care of their aged parents. Unknown to many; however, Uncle Sam can reward you in the form of tax credit for such care to reduce a couple of the expenses.
Before 2018, one could have been claiming parents as your dependents. From the 2019 tax year, however, the TCJA got rid of the dependent and personal exemptions. As a result, you will not get the personal exemption value for every dependent. On the other hand, you can claim a tax credit of $500 for dependents that are not your child.
Undoubtedly, all dependents must meet some requirements, and it could be pretty tricky for seniors and adults to meet such. Here are some checklists that can guide you towards determining if it is possible to claim your parents as dependents.
If your parents filed a joint tax return, you might not claim them as dependents except if they file the return to claim the tax refund they qualify for even though they did not have to file. Besides, if the spouse filed separately, there will not be any tax liability as well. Such parents must be residents or citizens of the US, Mexico, or Canada.
What is the value of your parent’s income?
To know if your parent qualifies as your dependent, check their income. For instance, when your dad makes over $4,150 between 2018 and 2025, it is impossible to claim him. There are times you can exclude social security from your income even though you might still be able to include it depending on other income such as dividends or interest. As a result, make sure to estimate your income to know if you can claim your parents as a dependent.
What is the value of your support for your parents?
Over half of the support of either parent must come from you before you can claim them as your dependent. As a result, basic living amenities like food, rent, living costs, medical, clothing, etc., need to come from you. Mind you, you need not be living under the same roof before you can claim them as your dependent. They might be in their home, retirement village, nursing home, or wherever.
For parents who take Social Security for the payment of some of their living costs, make sure to consider when estimating the support amount you offered.
Are your Parents getting multiple support?
If your parent's care falls on you and your siblings, and you have a total contribution that is more than half of the support, only one of the siblings will claim them provided the person contributed more than 10% of their support. You, alongside your siblings will choose who will make a claim, and the person can change every year. It is vital to file IRS Form 2120, Multiple Support Declaration, alongside your return.
Final Note
As soon as you establish if your parents qualify to be claimed, you can go ahead and file for your family tax credit on your return. While TCJA got rid of the 2017 dependency exemptions and years before, the credit value doubled, while the scope was expanded to accommodate dependents that are not kids, like parents.
Before TCJA, the value of the credit will phase out at a modified AGI value of $110,000 for married filing jointly, and half the amount for married filing single, and also $75,000 for other filing status. Also, the TCJA increased the phase-out of Annual Gross Income at $4 million for Joint filers and a half for different filing routes. This new legislation didn’t account for single, separate filers and heads of households.
With the recent family tax credit, you get as much as $500 for every parent that qualifies, with the AGI limitation. As long as you and your parents have a SSN or TIN; and passed the dependency test mentioned above, you can claim the credit. Taxpayers should note that the $500 for each qualifying parent is not refundable.
On a final note, make sure to discuss with a tax pro when exploring the requirements needed to claim your parents as dependent. For people that care for any of your parents, which you think could make you eligible for the credit, be sure to discuss it with your tax professional.
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Elliot Kravitz, ATP