For our purposes we will use an example of a dependent mother, but realize that any relative can qualify. Take the example of a dependent mother lives with an adult child who pays for more than half of her living costs (e.g. food, housing, utilities, health care, repairs, clothing, travel and comparable expenses.) Assuming that the mother not have more than $4.300 in gross income, the mother can be treated as a dependent.
Now a caution: Even if siblings or other family members contribute to the mother’s support only one family member can take the tax deduction. That sometimes causes a conversation, but it is important to work it out. If the majority provider decides to assign the deduction to another family member, that person must have individually contributed at least 10% of the subject’s support. The IRS calls it a “multiple support agreement”.
Another possible benefit is the deduction of medical expenses. If an adult child claims a parent as a dependent and also pays medical, dental, visual, and/or long-term expenses in excess of 7.5% of the adult child’s Adjusted Gross Income (AGI) those medical expenses can be deducted. Of course, medical expenses for the dependent mother can be added to the other medical expenses for those on the tax return to achieve the 7.5% threshold.
In-home care may also be covered. If the dependent parent is physically or mentally incapable of taking care of themselves and have lived with you for more than six months, the expenses are covered by the Dependent Care Tax Credit. This is a credit, not a deduction so it is extremely valuable and can be worth up to $4,000.
One more possibility: You may be able to use funds from a Health Savings Account (HSA) or a Flexible Savings Account (FSA) from your employer to pay for a qualified dependent’s medical expenses. One thing to keep in mind; if you use finds from an HSA or FSA to pay a dependent’s expenses, you cannot include the same amounts to meet the 7.5% threshold discussed above.