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 $4,400 in gross income during the year (as of 2022). 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, step siblings, and siblings-in-law.
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:
As part of the Tax Cuts and Jobs Act, a $500 credit was added for dependents 17 and older.
This does not affect the dependent care tax 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 50 percent of up to $6,000 in 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 Dependent Care Account (a type of flexible spending account) with up to $5,000 in pre-tax 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 up to $3,050 of your dependent parent’s medical costs pre-tax, 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 2022 and subsequent years. Please keep in mind that the IRS does not allow you to take multiple tax breaks on the same expenses, 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.