It’s safe to say that 2020 was a different year for most of us in just about every respect. Some of us had different living situations, staying together in the same household as a “bubble” with extended family. Others provided greater financial support for loved ones who lost jobs or were unable to work due to health concerns. As we continue to feel the effects of the COVID-19 pandemic, we are also preparing our tax returns for the past year, raising the question, “Can I claim my parent as a dependent on my income tax return?”
The answer depends on a number of factors, so let’s unpack what is involved in how to claim a parent as a dependent.
How to Claim a Parent as a Dependent
Often, when people think about claiming dependents on an income tax return, they assume that only children can be dependents for tax purposes. In reality, many relatives can be claimed as dependents, so long as they meet the criteria below.
Is the Person You Want to Claim as a Dependent Related to You?
If you want to claim an elderly parent as a dependent, the answer to this question is almost certainly “yes.” You can also claim an in-law or a stepparent as a dependent on your income taxes. However, foster parents do not count as “relatives” for purposes of this criterion. That said, if your foster parents have lived with you for a year, you may be able to claim them as dependents.
Does Your Parent Meet IRS Income Limitations?
In order to be claimed as a dependent, your parent’s income cannot exceed limits established by the IRS. For tax year 2020, your parent cannot be claimed as a dependent on your tax return if their gross income exceeded $4,300. (This income limit often changes from year to year.)
However, as a general rule, Social Security income does not count toward the gross income limit. However, if your parent’s income was more than $25,000 or they had income from dividends or interests, a portion of their Social Security may be included in their gross income.
Does Your Parent Meet the Residency Requirement?
In order for you to claim a parent as a dependent on your income taxes, your parent must be a citizen or resident of the United States, or a resident of Mexico or Canada.
Does Your Parent File a Joint Tax Return?
If you want to claim your parent as a dependent on your tax return, they may not file a joint income tax return with a spouse. If your parent is required to file a tax return, they must file separately.
Have You Provided More Than Half of Your Parent’s Support During the Tax Year?
You must have provided more than half of your parent’s support during the tax year for which you want to claim them as a dependent, and the support you provided must exceed their own income by at least one dollar.
Support includes direct cash payments, but it also includes things like bills you paid on their behalf, food, medicine, clothing, and other items you purchased for them, and so forth. If your parent lives with you, the amount you could have earned from renting their room to someone else is included in the amount of support, as is the increase in utility use attributable to them.
What if you and your siblings are all contributing to your parent’s support, such that no one individual is providing more than half of the support? As long as you provide at least 10% of your parent’s support, and you and your siblings collectively provide at least half of your parent’s support, you can still claim your parent as a dependent if you file a Multiple Support Declaration. However, if you want to claim your parent as a dependent, no one else can do so. Therefore, you should discuss the issue of claiming your parent with anyone else providing them support.
What if You Can’t Claim Your Parent as a Dependent?
Even if you are not eligible to claim your parent as a dependent on your income taxes because their income is too high, you may still be able to get a tax benefit for money you paid on their behalf. If you paid for some of your parent’s medical expenses, and you itemize deductions, you may be able to claim those expenses on Schedule A of your income tax return. However, you must still have provided at least half of your parent’s support in order to deduct their medical expenses. You must also meet the threshold of 7.5% of adjusted gross income spent on medical expenses in order to deduct these expenses.
You may also be eligible to claim a child and dependent care credit for your expenditures on behalf of your parent. This is a non-refundable tax credit, which means that if the amount of the credit exceeds the taxes you owe, you will not get the excess back as a tax refund. To claim this credit, you must have a parent who is physically or mentally unable to provide for themselves and received care that was necessary so you could work, or look for work. You must have earned income, and be able to identify the person or entity who provided your parent’s care. You may not claim this credit if you are married, but filing taxes separately from your spouse.
The U.S income tax filing deadline for 2020 is extended until May 17, 2021. If you have questions about claiming your parents or other relatives as dependents on your 2020 income tax return, we invite you to contact our elder law office.