Tax Breaks for Caregivers of Elderly Parents

There are several tax credits and deductions available to adult children who help look after their aging parents or other relatives. Here are some options along with the IRS requirements to help you determine if you’re eligible to receive them.

Tax Credit for Other Dependents

If your senior parent lives with you and you’re paying more than 50 percent of their living expenses (housing, food, utilities, health care, repairs, clothing, travel, and other necessities), and their 2023 gross income is under $5,000, you can claim your mom or dad as a dependent and get a nonrefundable tax credit of up to $560.

If you share living expenses with your siblings to support your parent who lives with you, and their 2023 gross income is under $5,000, you and your siblings can potentially claim your parent as a dependent as long as you meet the requirements for a “multiple support agreement” (MSA).

Here’s what that entails:

• Each sibling provides more than 10% of your mom’s total support: This means the combined contributions from all siblings (including you) must exceed 50% of her total annual support expenses (housing, food, utilities, health care, etc.).
• File Form 8832, “Multiple Support Agreement,” with the IRS: This form clarifies who claims the dependency and identifies which sibling provided the most support (if applicable).

The IRS has an interactive tool that will help you determine if your parent qualifies as a dependent. Go to IRS.gov/help/ita, scroll down to “Credits,” and click on “Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?”

Medical Deductions

If you claim your senior parent as a dependent and help pay their medical, dental, and/or qualified long-term care expenses (check IRS guidelines for specifics), and weren’t reimbursed by insurance, you can deduct the expenses that are more than 7.5 percent of your adjusted gross income (AGI) on your 2023 tax return.

Here’s what that means:

• Only qualified medical and dental expenses for your dependent parent are deductible. Double-check IRS guidelines for eligible long-term care expenses.
• You can only deduct the portion of expenses exceeding 7.5% of your AGI.
  • Example: If your AGI is $80,000 and you paid $8,000 in qualified medical bills for your parent, your deductible amount would be $8,000 – ($80,000 x 7.5%) = $2,000.
• Remember, you can include your own medical expenses in the calculation for the 7.5% threshold.
• You must itemize deductions on your tax return to benefit from this deduction. Compare the total itemized deductions (including medical expenses) to the standard deduction for your filing status to see if itemizing makes sense.

Additional points:

• Keep detailed records of all medical expenses paid for your parent, including receipts and documentation.
• Some states may have lower AGI thresholds for deducting medical expenses, potentially offering additional tax benefits.

Dependent Care Credit

If you’re paying for in-home care or adult day care for your elderly parent so you can work or actively look for work, you might qualify for the Dependent Care Tax Credit, which can be worth up to $3,500 for 2023. However, before claiming the credit, make sure you meet the key requirements:

Eligibility:

• Your parent must qualify as your dependent.
• Your parent must be unable to care for themself without assistance due to a physical or mental condition.
• They must have lived with you for more than half the year.
• You must be employed or actively looking for work for the credit to apply.

Additional points:

• Keep detailed records of all care expenses paid (receipts, invoices).
• The credit amount is capped at $3,500 for 2023.
• You may need to itemize deductions on your tax return to claim the credit. Compare the total itemized deductions (including care expenses) to the standard deduction for your filing status to see if itemizing makes sense.

Flexible Health Savings Accounts

If you have a health savings account (HSA) or your employer offers a flexible savings account (FSA), you can use them to pay for your mom’s medical expenses if she qualifies as a dependent. But be aware that if you use an HSA or FSA to pay for your mom’s medical costs, you can’t take a tax deduction on those expenses too.

For more information, see IRS Publication 969, “Health Savings Accounts and Other Tax-Favored Health Plans” at IRS.gov/pub/irs-pdf/p969.pdf.

This article is intended for informational purposes only and does not constitute tax advice. The information provided is based on general tax principles and may not apply to your specific situation. Please consult with a qualified tax professional for personalized advice and guidance to ensure your tax planning is accurate and compliant with all applicable regulations.

Additionally:

• Tax laws and regulations are complex and subject to change. This article may not reflect the latest updates or developments.
• Individual circumstances can significantly impact tax implications.
• This article does not endorse any specific tax strategies or products.

By using this information, you acknowledge that you understand and accept the limitations presented in this disclaimer.