The elderly commonly rely on their children for financial support to supplement retirement savings and income from entitlement programs such as Social Security. Caring for a parent can be expensive, but it may also save you money on your federal income taxes through a dependent exemption and a dependent care tax credit. Parents must meet various requirements to qualify you for tax savings.
When you file an income tax return, the Internal Revenue Service grants you a personal tax exemption of $3,800. This means that $3,800 of your income avoids taxation in addition to any deductions or credits you claim. You claim an additional tax exemption of $3,800 for each of your dependents. Dependents fall into two basic categories: qualifying children and qualifying relatives. Parents do not count as qualifying children but you can claim a dependent exemption for parents who are considered qualifying relatives.
Qualifying Relative Requirements
A parent must meet two tests to count as a qualifying relative: the gross income test and the support test. To meet the gross income test, your parent's annual gross income must be less than $3,700. To meet the support test, you must provide more than half of your parent's total support for the calendar year. Your parent does not have to live with you to qualify as a dependent.
Multiple Care Providers
In some families, siblings and other relations contribute to provide care for the elderly. If multiple people pay for the support of your parent but no one pays for more than half, one of the individuals who provides more than 10 percent of your parent's support can claim a dependent exemption for the parent. The other support providers must sign a statement agreeing not to claim the exemption.
Dependent Care Credit
The dependent care credit is a tax credit granted to working people who incur child or dependent care expenses due to work. A parent can make you eligible for the dependent care credit if he is physically or mentally incapable of self-care and lives with you for more than half the year. You are eligible for the credit only if you have to pay for dependent care so that you can work or look for work. If you are married, your spouse must work or be a full-time student or disabled for you to claim the credit. The maximum credit is 35 percent of dependent care expenses up to $3,000 for one dependent and $6,000 for multiple dependents.
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