Are you a son or daughter supporting an elderly parent? If so, you may qualify for some tax benefits from the US government that rewards you for your selfless acts. These tax benefits may include claiming your parent as a dependant on your tax return or deducting the contributions you made towards their medical expenses. In order to qualify for these tax breaks, a caregiver must first be aware of the tax benefits available and then they must determine whether or not they qualify. “It is important for all family caregivers to verify their eligibility and take advantage of these tax credits,” said Allen Hager, chairman and CEO of Right at Home, Inc, the international in-home care franchise. “As a provider of in-home senior care, we understand the financial implications of caring for your aging loved ones.” Right at Home turned to Honkamp Krueger & Co, PC, to provide helpful information that may save you money.
If a caregiver supports their elderly parent, they will want to claim them as a dependant on their tax return to receive the maximum amount of tax savings. The caregiver can then take an exemption for the 2010 tax year, which will equate to a reduction of their taxable income by $3,650. In order to determine if a caregiver qualifies to take the elderly parent as a dependent, the parent of the caregiver will need to pass the following four tests:
Not a qualifying child test: This test is a non-issue in the case where a son or daughter is looking to claim their parent as a dependant. A qualifying child is another type of a dependant on a tax return. The IRS is just making certain that a qualifying child does not use these four tests to qualify themselves since they have their own set of requirements.
Member of household or relationship test: In the case of a son or daughter as the caregiver, they qualify since they meet the relationship test. A caregiver and their parent would not need to live with one another. In the case where a parent lives on their own or in assisted living, a caregiver’s parent may still qualify as a dependant as long as they pass the other tests.
Gross income test: In order to meet the requirements of this test and qualify as a dependant, a parent’s gross income for the year must be less than $3,650. This amount does not include income from non-social security or disability payments. However, income received from other sources, such as withdrawals from retirement plans, pension benefits, rental income, or interest and dividends from investments would go towards a parent’s income total, which could disqualify them as a dependant if they exceed the income limit.
Support test: The final test to complete is the support test. This test can be the most complicated to determine. In order to meet the requirements of this test, a caregiver must conclude that over half of their parent’s expenses were provided by the caregiver. There are many factors involved in coming to this conclusion including food, housing, clothing, medical care and transportation expenses. Also, to be thrown into the mix is when there are multiple siblings giving support for a parent. In this case, as long as a sibling provides at least 10 percent of the support and the combined support of all siblings makes up half of their parent’s annual expenses, the parent could be claimed as a dependent. However, only one sibling can take the exemption for the parent. An agreement needs to be reached each year as to which sibling will take the exemption on their return. The sibling taking the exemption will need to file Form 2120, Multiple Support Declaration, and have all of the other siblings sign the form claiming that they will not take the exemption on their own return.
For those caregivers whose parent did not pass the tests to determine that they are an eligible dependant because of income guidelines, there may still be a chance to receive tax savings this tax year. Medical expenses may be deducted on a caregiver’s tax return, along with their own expenses, for dependants and for individuals that would have been a dependant, except for the income guidelines. As with the above, the IRS allows caregivers to deduct costs incurred from a parent’s health care, such as hospitalization, prescription drugs, dental care and even long-term care services. The deduction is limited to medical expenses that are in excess of 7.5 percent of the caregiver’s adjusted gross income (AGI). So in the case where a caregiver makes $50,000 in 2010, they would not be able to receive any deductions until they had paid medical bills accumulating to $3,750.
Right at Home, Inc., an international franchise organization based in Omaha, NE, is a client of Honkamp Krueger & Co., PC. Independently owned and operated franchise units offer in-home companion and personal care and assistance to seniors and disabled adults who want to continue to live independently. Right at Home offices directly employ all caregiving staff, each of whom are thoroughly screened, trained, bonded and insured prior to entering a client’s home. All ongoing care is monitored and supervised by more than 200 local franchise offices located across 40 states nationwide, the United Kingdom and Brazil. For more information on Right at Home, visit About Right at Home at www.rightathome.net/about-us. To sign up for Right at Home’s free adult caregiving eNewsletter, Caring Right at Home, visit www.rightathome.net.