Tax Credit for Elderly Parent Living With You: What You Need to Know
Learn how tax credits can help offset the costs of supporting an elderly parent, including eligibility rules, expense considerations, and filing requirements.
Caring for an elderly parent can be both emotionally and financially demanding. Fortunately, the tax code offers relief through credits that help offset some costs, easing the financial burden on caregivers.
Understanding these tax credits and what qualifies is essential to maximizing savings.
Dependent Status
To claim a tax credit for an elderly parent, determine whether they qualify as your dependent. The IRS requires that you provide more than half of their financial support, covering housing, food, medical expenses, and other necessities. Their taxable income must be below $4,700 for 2024, excluding most Social Security benefits.
If multiple siblings contribute, only one person can claim the parent as a dependent. A Multiple Support Agreement (Form 2120) allows one family member to take the tax benefit while others waive their right to claim it.
Your parent does not need to live with you as long as you cover more than half of their living expenses, even if they reside in a nursing home or assisted living facility. They must also be a U.S. citizen or resident alien for at least part of the tax year.
Eligible Care Expenses
Certain care-related expenses qualify for tax benefits. Medical and dental costs, including doctor visits, hospital stays, prescription medications, and medically necessary long-term care services, may be deducted if not reimbursed by insurance.
Home modifications for mobility challenges, such as wheelchair ramps and handrails, may qualify if made primarily for medical care. Transportation expenses related to medical care, including mileage, public transit fares, and ambulance services, can also be deducted.
In-home care services, such as a home health aide assisting with daily activities, may qualify if essential for your parent’s well-being. Adult day care programs that provide supervision and social engagement may also be eligible if they help maintain your parent’s health and allow you to continue working.
The Credit Calculation
The Credit for Other Dependents (ODC) provides up to $500 per dependent and reduces tax liability. For 2024, it begins to phase out for single filers with a modified adjusted gross income (MAGI) above $200,000 and for married couples filing jointly above $400,000.
Caregivers paying for services that allow them to work or seek employment may qualify for the Dependent Care Credit. This credit covers a percentage of eligible care costs, with the percentage decreasing as income rises. Unlike the ODC, part of the Dependent Care Credit can be refundable, meaning some taxpayers may receive money back even if they owe no taxes.
Filing and Documentation
Keeping detailed records of payments for medical services, caregiver wages, and other qualifying costs is essential. The IRS may require receipts, invoices, and bank statements to verify expenditures.
When filing, IRS Form 2441 (Child and Dependent Care Expenses) may be required for the Dependent Care Credit, while medical deductions should be itemized on Schedule A of Form 1040. If payments were made to an in-home caregiver, additional filings such as Schedule H (Household Employment Taxes) may be necessary, depending on whether the caregiver is classified as an employee under IRS guidelines. Misclassification can result in penalties, so understanding employment tax obligations is important.
Interactions With Other Tax Benefits
Coordinating deductions and credits requires careful planning to avoid disqualifying yourself from certain benefits. Some tax provisions overlap, while others have restrictions that prevent double-dipping.
The Credit for Other Dependents and the Medical Expense Deduction can both be claimed for the same individual, but medical expenses must be itemized, and only the portion exceeding 7.5% of adjusted gross income (AGI) is deductible. Higher-income taxpayers may see little benefit from itemizing unless they have significant medical costs. Additionally, medical expenses paid with a Flexible Spending Account (FSA) or Health Savings Account (HSA) cannot be deducted again on a tax return.
The Dependent Care Credit cannot be claimed for expenses reimbursed through an employer-sponsored Dependent Care FSA. If an employer offers this benefit, the first $5,000 of qualifying expenses must be applied to the FSA before any remaining amount can be used for the credit.
Claiming a parent as a dependent may also impact their eligibility for government assistance programs, such as Medicaid, which has strict income and asset limits. Understanding how tax benefits interact with other financial considerations can help maximize savings while ensuring continued access to necessary care.