Like many Americans, you may find yourself having to help cover the medical costs and caregiving expenses of an aging parent or other close relative. If you and your parent meet certain criteria set by the Internal Revenue Service (IRS), you may qualify for tax breaks that can ease the financial burden of paying for care, even if your parent does not live in your home.
For example, your mother must not have earned or received more than the exemption amount for the tax year to qualify as a dependent. Filing in 2021 for the tax year 2020, your mother’s gross income for the year has to be less than $4,300. Gross income is all income in the form of money, property, and services that is not exempt from tax. Generally, Social Security income is not counted in this amount, but there are exceptions. If, for example, your mother has other income from interest or dividends, a portion of her Social Security may also be taxable.
To be considered a dependent for tax purposes, your mother must receive more than half of her support from you. You can determine whether you have provided more than half of your mother’s total support by comparing the amount you contributed to her support with the entire amount of support she received from all sources. If your mother is in her own house or in an assisted living facility or a nursing home, amounts you pay for her support at those locations count toward meeting the IRS 50% threshold.
If your mother lives in your home, you are permitted to take into account the fair market value (FMV) of her accommodations, utilities, food, medicine, and other support items you provide when seeking to meet the 50% threshold. If, however, your mother is using Social Security benefits to pay for some of these items, this must be figured into the calculation of whether you cover more than half of her support costs. Since the rules on what items can be counted as necessary for support are complicated, and may vary from case to case, the IRS Publication 501 provides more specific information.
If your mother has met the IRS dependency tests, you can use any medical expenses you pay for her, including prescription drugs, medical equipment, hospital care, or doctor’s visits, toward the itemized medical expenses deduction. The addition of your mother’s expenses could help you meet the requirement that your medical costs exceed 7.5% of your adjusted gross income (AGI). If your mother is your dependent, premiums for supplementary Medicare coverage or long-term care insurance may also be included in this deduction. Even if your mother is not considered a dependent for exemption purposes because she earns too much, but has satisfied the other tests, you may still be able to count some medical expenses you have covered for your parent toward your own medical expenses deduction.
If your mother lives with you and requires continual care that is provided by paid caregivers while you and your spouse are at work, you may also be eligible to claim the non-refundable child and dependent care credit, which covers up to 35% of the cost of care. To qualify, your mother must be physically or mentally unable to care for herself, and you, as the adult child responsible for your parent’s care, need to have earned income and work-related expenses. When claiming the credit, you must be able to properly identify your care provider, including the provider’s name, address and Social Security or employer identification number. In some cases, these expenses can be covered by pre-tax payments you make through a flexible spending arrangement (FSA) sponsored by your employer. You must, however, choose between the FSA and the tax credit, as you are not permitted to claim both for the same expense.
In many families, brothers and sisters share the costs of caring for a parent. If you and your siblings share the cost, with none of you solely paying for half of the support, but with each contributing at least 10% toward parental care, the person claiming the parent as a dependent should file Form 2120 when filing his or her taxes, which will help you and your siblings account for the tax implications of a shared-care arrangement.
In another example, say your father is in a nursing home or assisted living facility. Your father’s Social Security covers 40% of the facility’s costs, and you and your brother split the remaining costs, with each paying 30%. Because more than half of your father’s support comes from his two adult children, he can be claimed as a dependent by you or your brother. You may then agree with your brother to take turns claiming the deduction in successive tax years.
If you agree that your brother can claim your father as a dependent this tax year, your brother then files Form 2120 with his 1040 tax return. This form indicates that, although more than one sibling contributed to your father’s support, the other has agreed to waive any tax exemption claim for that year. Your brother should get a signed statement from you acknowledging that you have waived your tax claims, and keep them in his records in case the IRS questions any exemption or medical deduction claims.