A growing number of middle-aged and older Americans are financially and physically supporting other adult members of their family – often parents and grandparents. There are tax benefits available to help out in this situation, but do you qualify to take them?
The Rules for Claiming an Adult Dependent
There are two types of dependents: qualifying children and qualifying adults. The rules are similar for both categories, but qualifying relatives generally have a lower income threshold to be considered dependents.
So, what are the rules for qualifying relatives?
- They either live as a member of your household or are closely related to you (including those who are/were related by marriage). This means that your adult family member who lives alone or in an assisted-living facility may still be claimed if he or she is closely related to you and meets the other qualifications.
- They must earn less than $3,950 (in 2014) in gross (taxable) income. Such income includes wages, rental income, business income and unemployment benefits. It does not, though, include nontaxable Social Security benefits.
- You must provide more than half the cost of their support. For tax purposes, support includes food, lodging, clothing, education, medical, transportation and recreation costs.
How Are Your Taxes Changed?
For a single person, claiming a qualifying dependent can have a significant impact. Your tax filing status changes from "Single" to "Head of Household," bringing with it a much larger amount of tax-free income.
As you can see on Form 1040, single filers in 2014 receive a standard deduction of $6,200 while heads of household are given a $9,100 standard deduction. Also, the extra member of your tax household means an additional $3,950 (in 2014) personal exemption, which further reduces your taxable income.
Married couples who claim an adult relative as a dependent don't benefit as much. They receive the additional exemption but their filing status doesn't change.
If you itemize deductions, the added member of your tax family could increase your deductions. This is because you can claim the medical expenses incurred to care for the dependent as well as your own. For those who are receiving home health care, live in nursing homes or require changes to the home they live in, these deductible medical expenses can add up quickly.
As your parent or grandparent's situation changes, it's important to understand how to maximize your tax benefits so you can continue to help out as much as possible – both financially and emotionally. For more information, contact Tri Check Inc. or a similar company.