If you are supporting an elderly parent, you may qualify for some tax benefits from the U.S. government that reward you for your caregiving efforts. These tax benefits may include claiming your parent as a dependent on your tax return or deducting the contributions you made towards their medical expenses and care. In order to qualify for these tax breaks, you must first be aware of the tax benefits available and then determine whether you qualify. “It is important for all family caregivers to verify their eligibility and take advantage of these tax credits,” said Allen Hager, chairman and CEO of Right at Home, Inc, an international in-home care franchise.
Tip #1: Determine if you are able to claim your elderly parent as a dependent.
If you support your elderly parent, you will want to claim him/her as a dependent on your tax return to receive the maximum amount of tax savings. You can then take an exemption for the 2011 tax year, which will equate to a reduction of your taxable income by $3,700. In order to determine if you qualify to claim your elderly parent as a dependent, you will need to pass the following four tests.
Not a qualifying child test – Obviously, a qualifying child is another type of a dependent; however, the IRS wants to ensure a qualifying child dependent status (which has its own set of requirements) is not claimed using these four tests. This test is a non-issue for caregivers.
Member of household or relationship test – If you are a son or daughter who is caring for a parent, you qualify since you meet the relationship test. You and your parent do not need to live with one another in order to qualify. In the case where a parent lives on their own or in assisted living, your parent may still qualify as a dependent as long as they pass the other tests.
Gross income test – Your parent’s gross income for the year must be less than $3,700. This amount does not include income from non-social security or disability payments. However, income received from other sources, such as withdrawals from retirement plans, pension benefits, rental income, or interest and dividends from investments would go towards a parent’s income total, which could disqualify the parent as a dependent if he/she exceeds the income limit.
Support test – The final test to complete is the support test. This test can be the most complicated to determine. In order to meet the requirements of this test, you must pay for over half of your parent’s expenses. There are many factors involved in coming to this conclusion including food, housing, clothing, medical care, and transportation expenses.