Supporting an Elderly Parent

Increasingly, Americans are providing some support for one or both parents. This may take the form of personal services, emotional support, or helping to pay the bills. As the population ages, the number of individuals helping to support their parents will only continue to grow. What help does the tax law provide to alleviate the financial burden on adult caregivers?

Filing status

Single taxpayers who provide financial support may be entitled to use head-of-household status. This filing status means higher standard deduction for those who do not itemize as well as more favorable tax brackets than for single taxpayers who do not qualify for head-of-household status.

One of the requirements for head-of-household status usually is maintaining a home in which you and a dependent reside. However, for a parent, this “same home” rule does not apply. As long as you pay more than half the cost of your parent’s home, you may be eligible for head-of-household status. For instance, if your parent is in a nursing home or assisted living facility and you pay more than half the monthly fees, you are treated as maintaining more than half the cost of your parent’s household.

Dependency exemption

If you pay more than half the cost of your parent’s support for the year and your parent does not have gross income exceeding the exemption amount, you can claim your parent as a dependent.

If you and your siblings or others chip in toward your parent’s support, you may still be eligible for a dependency exemption even though you alone do not pay more than half your parent’s support. You and other contributors together must pay more than half the support. Then you can decide among yourselves who will claim the exemption. It can be any of the contributors who pays more than 10% toward the support. You can change from year to year as long as you are eligible and all agree. Use Form 2120 to say which contributor is entitled to the exemption each year.

Suggestion:It usually makes sense for the contributor in the highest tax bracket to use the exemption, as long as this person is not subject to a reduction on personal exemptions.

Medical deductions

If your parent is your dependent (because you alone pay more than half the parent’s support or claim the dependency exemption under a multiple support agreement), you can add his/her medical expenses that you pay to your own out-of-pocket medical costs. Medical costs can include your parent’s premiums for Medicare Parts B and D, nursing home costs, and other medical/dental bills you pay.

If your parent fails to be treated as your dependent because gross income is more than the annual limit, you can still add the medical costs you pay for your parent to your own when figuring your annual deduction. The only requirement: You must provide more than half of your parent’s support.

Dependent care credit

If your parent is a dependent who is unable to care for himself (e.g., unable to dress, clean, or feed himself because of a physical or mental problem) or who must have constant attention to prevent him from injuring himself or others, and you work, you can claim a dependent care credit. This tax credit, which can be as much as 35% of care costs up to $3,000 for your parent, is an important way to reduce your annual tax bill.