Caring for qualifying relatives – and others – changes lives and tax situations
Wondering what to get Dad for Father’s Day? Most Dads have all the ties they need (or want) and with the decluttering and minimalism trends in the headlines, many people want fewer things – and that can mean fewer gifts to buy. But, that doesn’t necessarily mean Dad doesn’t want anything for his special day. In fact, many older adults simply want their kids to offer them a helping hand when they need it.
Based on age, health and financial situation there are a variety of things adult children can do to help their parents. In some situations, living together could be the best option; nearly 1 in 5 Americans live in multigenerational households, which are households with two or more adult generations.
Some advantages of multi-generational households are that families can support each other during times when they need help taking care of themselves or their children. It doesn’t matter who moved in with whom, but whoever is footing the bills could have some tax savings. But, even adult children who don’t live with their older parents could be eligible to claim them as dependents if they meet other qualifications.
To claim relatives and others as dependents look at citizenship, income and level of support
Some adult children helping support their parents may even be able to claim the dependent exemption – which is $4,050 per dependent for 2017 – on their tax return. To claim their parent’s exemption these qualifications must be met:
- Their parent is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico
- Their parent has gross income that is no more than the dependent exemption amount
- The taxpayer provides more than 50 percent of their parent’s eligible living expenses
- Eligible expenses include food, lodging, clothing, education, medical and dental care, recreation and transportation
- The taxpayer should keep appropriate receipts and documentation to verify these expenses.
Also, if a single adult child claims their parent as a dependent, their tax filing status might change from “single” to “head of household” if they paid more than half the cost of keeping up the parent’s home. The head of household filing status has more favorable rates and other benefits that generally result in a better tax outcome than the single filing status. This is an option even if the taxpayer and the parent didn’t live together.
Taxpayers who support other close relatives – e.g., nieces, nephews, aunts and uncles – may be able to claim dependent exemptions for them too. The requirements are the same as those for dependent parents. Single taxpayers may also change from single to head of household filing status if they shared the same main home with the dependent relative for more than half the year and they paid more than half the cost of keeping up their home.
It is also possible to claim a non-relative as a dependent, but that person must live with the taxpayer the entire tax year. In this situation, a single taxpayer can’t switch from the single filing status to the head of household filing status.
Before getting Dad another tie, it might be a good idea to check in and see what he really wants – especially if he is older. Whether it’s moving in with their adult children or helping with chores, determining what kind of help older parents want or need likely can be accomplished by family members talking to each other. Taxpayers can learn more about claiming their adult parents.
Parents who hire a nanny could be responsible for paying “nanny taxes” including withholding Social Security, Medicare and unemployment taxes. Learn more about nanny tax rules with H&R Block.