Claiming parents as dependents can bring significant tax advantages to a taxpayer. Under the Internal Revenue Code, two tax credits and one deduction are available to a taxpayer if you include your parents as dependent on you. But, there are several conditions to fulfil. This post will provide a definitive guide on these beneficial law provisions.
How many tax credits or deductions can you claim?
This is the first question people ask me. If you claim your parents as dependents, the following three tax benefits -two credits and one in the deduction form- are available.
(1) For expenses on caring for your parents under Child and Dependent Care Credit Section 21 of IRC – maximum $3,000 ($6,000 for a joint return))
(2) Credit for Other Dependents under IRC 24 – maximum $500
(3) Medical expense under IRC 213 -maximum $2000.
It should be noted that credits and deductions, as mentioned above, require fulfilling the conditions of respective law provisions. The quantum may also vary depending on the situation and income of the taxpayer. The Child and Dependent Care Credit and the Credit for Other Dependent are nonrefundable, which means that if the credit exceeds the amount of taxes owed, taxpayers can receive a refund for a portion of the excess credit, but not necessarily the full amount.
1. Child and Dependent Care Credit under Section 21 of IRC – maximum $3,000
The IRS has specific guidelines to determine whether you can claim your parent as a dependent on your tax return. To be considered a qualifying relative, your parent must meet the following criteria:
- All kinds of Parents -biological, adoption, or marriage, including step-parents and in-laws, qualify.
- Parents must be U.S. citizens, U.S. residents-aliens, or residents of Mexico or Canada.
- The parent’s gross income must be less than $4,700 (2023 tax year).
- You must provide over half of your parent’s support for the year. Just note that your parent must not reside with you to qualify for this credit.
- If your parent is still married and files a joint return, they are ineligible to be claimed as a dependent.
- You must also include the contact information (name and address) for the caretaker, as well as their Social Security number (SSN) or Employer Identification Number (EIN).
2. Credit for Other Dependents (Max $500)
If you declare your parents dependent, you may also qualify for a non-refundable tax credit of a maximum value of $500.
But note that the credit is not absolute as it begins to phase out if your income exceeds $200,000 (single) or $400,000 when filing a joint return. IRS has put a free online tool to compute the tax credit.
3. Medical Expenses Deduction
You can deduct any unreimbursed medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) if you itemize when filing.
Since this deduction can be claimed only when you itemize your deductions, it is not available if you claim a standard deduction. Read the 10 Overlooked Deductions You Can Claim Alongside Your Standard Deduction!
When you file a tax return for 2023 in April, this article will help you save on taxes. Have you seen dependent tax filing calculator.
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