Supporting Your Parent: What You Need to Know

While about half the states have laws requiring adult children to provide financial support for indigent parents, most adult children feel a moral obligation to provide needed support with or without any legal requirement. Support can be financial, personal, or emotional. For some, doing this can be a sacrifice or at least a strain on the family. However, the tax law provides certain breaks that can ameliorate the financial burden.

Head of household status

Adult children who are unmarried may qualify for a more favorable tax filing status than “single” (unmarried) if they meet the requirements to be treated as “head of household.”

• You are unmarried or considered unmarried on the last day of the year
• You paid more than half the cost of keeping up your home. Your parent does not have to live in your home as long as he/she qualifies as your dependent (below).

Head of household status entitles you not only to more favorable tax rates than other single individuals, but also:

• Increased standard deduction amount
• Higher exemption amount for alternative minimum tax purposes

Dependency exemption

The dependency exemption is a tax deduction ($3,950 in 2014; $4,000 in 2015) that can be claimed whether or not you itemize personal deductions. Naturally, your parent is a “qualified relative” (one of the conditions for a dependency exemption), but you must also meet these conditions to take the exemption:

• You provide more than half your parent’s support. Gross income does not include Social Security benefits excluded from income and income received that is not used for support. The IRS gives this example: Your mother received $2,400 in Social Security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation; she put $300 in a savings account. Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support.

• Your parent’s gross income does not exceed the exemption amount.

Your parent does not have to live with you in order for you to claim the exemption. The parent can live in his/her own home or any other place (e.g., assisted living facility).

Medical expenses

If you pay your parent’s medical expenses and you itemize your personal deductions, you can add these costs to your own in figuring your deduction. You can do this as long as you paid more than half your parent’s support, whether or not you claim your parent as a dependent. In figuring your itemized medical deduction, use the adjusted gross income threshold for you, not the one for your parent. Thus, if you are under age 65, only out-of-pocket medical costs for you (and your parent) are deductible to the extent they exceed 10% of your adjusted gross income, even though your parent is age 65 or older.

Dependent care credit

If your parent lives in your home, you may be able to claim a tax credit enabling you to work. The child and dependent care credit can be claimed for the costs of caring for a parent if he/she is physically or mentally unable to care for him/herself and qualifies as your dependent.

Your adjusted gross income restricts the amount of the credit you take. The maximum is 35% of $3,000 of qualifying expenses, or $1,050. If your AGI is $43,000 or more, your credit is limited to 20% of $3,000, or $600. And the costs using if figuring the credit cannot also be deducted as a medical expense.

Note: If you hire someone to care for your parent in your home, file Schedule H of Form 1040 to report employment taxes related to the worker. If the worker is employed by an agency, you do not have any employer responsibilities; the agency does.

Conclusion

Most adults who support their parents do so out of love; some out of necessity. Either way, tax breaks can be a small reward for these efforts. For more information about state-level programs assisting caregivers, go to the Family Caregiver Alliance (https://caregiver.org/).