Do you pay over half the cost of supporting a parent? If so, your parent is your dependent for federal income tax purposes. As such, you may be entitled to some meaningful tax breaks. Here’s the list.
Favorable head of household filing status
For unmarried individuals, a common (and expensive) error is filing as a single taxpayer when more favorable head of household (HOH) filing status is allowed. Compared to single taxpayers, heads of households are entitled to wider tax brackets and bigger standard deductions. So, using HOH filing status can save you significant bucks at tax return time.
If you’re unmarried and pay over half the cost of maintaining your dependent parent’s principal home for the year, you can use beneficial HOH filing status based on your dependent parent. There’s no requirement for you and your dependent parent to actually live in the same household.
You must pay over half of your parent’s support for your parent to be treated as your dependent for HOH filing status eligibility purposes.
Your parent must also pass a gross income test to be treated as your dependent for HOH filing status eligibility purposes. Your dependent parent passes the gross income test for 2020 and 2021 if he or she has gross income of no more than $4,300. For the gross income test, ignore any tax-free Social Security benefits. However, those tax-free benefits must be considered in determining if you pay over half of your parent’s support.
Example: You are unmarried. In 2021, you pay over half the support for your widowed mother, and you pay over half the cost of maintaining her home for the year. Your mother lives in her own home.
Her gross income consists of $20,000 of tax-free Social Security benefits and $300 of interest income, all of which she uses for her own support. Because the Social Security benefits are ignored for the gross income test, your mother passes that test.
Conclusion: For 2021, your mother qualifies as your dependent for HOH filing status eligibility purposes because: (1) she passes the gross income test, (2) you pay over half of her support for the year, and (3) you pay over half of the cost of maintaining her home for the year.
Dependent care credit (CDCC)
Taxpayers with one or more qualifying individuals under their wings can be eligible for the CDCC. This credit covers eligible expenses that you pay to care for one or more qualifying individuals so you can work, or if you’re married, so both you and your spouse can work. Qualifying individuals can include a dependent parent who lives with you for over half the year and who is physically or mentally incapable of self-care. The maximum CDCC for a qualifying dependent parent is $4,000, subject to an income phaseout rule.
For 2018-2025, the Tax Cuts and Jobs Act established a $500 federal income tax credit for dependents who don’t qualify for the more-lucrative child tax credit. So, a dependent parent can make you eligible for the $500 credit. However, your parent must pass the aforementioned gross income test to be classified as your dependent for purposes of this credit. You must also pay over half of your parent’s support.
Medical expense deduction
You can claim an itemized deduction for medical expenses paid for you, your spouse, and your dependents to the extent those expenses exceed 7.5% of your adjusted gross income (AGI). While clearing the 7.5%-of-AGI hurdle can be difficult, it can be less difficult when you’re paying significant medical expenses for a dependent parent. You must pay over half of your parent’s support for your parent to be classified as your dependent for medical expense deduction purposes. However, the aforementioned gross income test is N/A when determining if your parent is your dependent for medical expense deduction purposes.
Warning: To claim deductions for a dependent parent’s medical expenses, you must make direct payments to medical service providers. Reimbursing your parent for expenses that your parent paid will not get you any deduction.
Identify qualifying parental medical expenses
For itemized medical expense deduction purposes, your dependent parent’s medical expenses can include (but are not limited to) the following:
- Health insurance premiums that you pay.
- Out-of-pocket medical expenses that you pay. These can include insurance co-payments and deductibles and expenditures for dental and vision care.
- Qualified long-term care (LTC) insurance premiums that you pay. Premiums for qualified LTC insurance policies count as medical expenses for itemized deduction purposes, subject to the age-based limits shown below. For each covered person, count the lesser of: (1) premiums actually paid or (2) the applicable age-based limit. For 2021, the age-based premium limits are as follows.
Age as of 12/31/21 maximum LTC premium deduction
40 or less: $450
41 to 50: $850
51 to 60: $1,690
61 to 70: $4,520
71 and up: $5,640
Add up qualifying expenses you paid
To determine if you incurred enough medical expenses to claim an itemized deduction, add up all the qualifying medical expenses for you, your spouse, and your dependents — including your dependent parent if applicable. To itemize, your total itemized deductions must exceed your allowable standard deduction. For 2021, the following standard deduction amounts generally apply.
- $12,550 for single filers.
- $18,800 for heads of households.
- $25,100 for married joint-filing couples.
The bottom line
Helping out your parent can qualify you for some well-deserved tax breaks. Don’t fail to collect them.