Fortunately, there is some good news. You may be able to claim your elderly relative as a dependent at tax time, as long as you meet certain criteria.
Here’s what you should know about claiming an elderly parent or relative as a dependent:
Who Qualifies as a Dependent?
The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, for example, and can be any age.
There are four tests that must be met in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.
Not a Qualifying Child
Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return.
He or she must be U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; however, a parent or relative doesn’t have to live with you in order to qualify as a dependent.
If your qualifying parent or relative does live with you, however, include a percentage of your mortgage, utilities, and other expenses when you figure out the amount of money you contribute to his or her support.
To qualify as a dependent, income cannot exceed the personal exemption amount, which in 2019 was $4,200 ($4,300 in 2020). In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.
You must provide more than half of a parent’s total support for the year such as costs for food, housing, medical care, transportation and other necessities.
Claiming the Dependent Care Credit
You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.
In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both.
Claiming the Medical Deduction
If you claim the deduction for medical expenses, you still must provide more than half your parent’s support; however, your parent doesn’t have to meet the income test.
The deduction is limited to medical expenses that exceed 7.5 percent and you can include your own unreimbursed medical expenses when calculating the total amount. If, for example, your parent is in a nursing home or assisted-living facility. Any medical expenses you paid on behalf of your parent are counted toward the 7.5 percent figure. Food or other amenities, however, are not considered medical expenses.
What if you share caregiving responsibilities?
If you share caregiving responsibilities with a sibling or other relative, only one of you – the one proving more than 50 percent of the support – can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.
Sometimes, however, neither caregiver pays more than 50 percent. In that case, you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.
The tax rules for claiming an elderly parent or relative are complex but if you have any questions, help is just a phone call away.
Another New Design for Form 1040
The new 2019 Form 1040, which was redesigned last year to be “postcard-sized” has been revised yet again. As with last year’s design, the form gathers information about the taxpayer(s) and dependents. It is also the form you need to sign and date when filing your return. New for this year, taxpayers aged 65 and older may be able to use Form 1040-SR (see below for more information).
More complex tax situations will generally require using one or more of the supplemental schedules that were also new for 2018, but which for 2019, have been consolidated into three schedules (Schedules 1, 2, and 3). Of note, is that the 2018 Schedule 6, Foreign Address and Third Party Designee, has been incorporated into the Form 1040.
As in 2018, Forms 1040A and 1040EZ no longer exist. Instead, taxpayers should use Form 1040 or Form 1040-SR.
Virtual Currency Questions
For the 2019 tax year, taxpayers who engaged in a transaction that involved virtual currency (e.g., Bitcoin and Ether) will need to file Schedule 1, Additional Income and Adjustments To Income. Taxpayers are reminded to maintain records that support any information provided on their tax returns such as records documenting receipts, sales, exchanges or other dispositions of virtual currency and the fair market value of the virtual currency.
While more than nine out of 10 refunds are issued in less than 21 days, some tax returns require additional review and take longer to process than others. This may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud.
Furthermore, tax law requires that the IRS hold refunds on tax returns claiming the Additional Child Tax Credit (ACTC) or Earned Income Tax Credit (EITC) until mid-February – even the portion not associated with the EITC or ACTC. Even so, most of these types of refunds are expected to be available in taxpayer bank accounts or on debit cards by the first week of March as long as the taxpayer chose direct deposit and there are no other issues with the tax return.
As a reminder, once refunds are issued by the IRS there may be additional time for processing by financial institutions, which must accept and deposit the refunds to bank accounts and products. Typically, refunds and payments are not processed on weekends or holidays, which can affect when refunds reach taxpayers. Refund information will generally be available within 24 hours after the IRS acknowledges receipt of an electronically filed return.
Tax Filing Deadline
For most taxpayers the filing deadline to submit 2019 tax returns is Wednesday, April 15, 2020; however, there’s no better time than right now to begin gathering information needed to prepare your tax return.
If you have any questions about the new tax forms or need assistance preparing and filing your tax return, help is just a phone call away.