They are called the “sandwich generation” – Americans who are caring for an elderly parent while also raising their own children. These taxpayers have a unique situation and some definite tax benefits to consider.
“With recent changes to the tax code, there’s even more relief for those with kids in college and those caring for an elderly parent,” said Gil Charney, tax analyst with The Tax Institute at H&R Block. “It all centers on the definition of a dependent.”
“Dependent” no longer means simply a child living at home. Even nonrelatives living with you or relatives not living in your house could qualify as dependents for tax purposes.
Many taxpayers may be able to claim deductions for a parent’s medical expenses or dependent care. In addition, they may qualify to claim a dependent exemption for a parent, meaning a deduction of $3,500.
The Internal Revenue Service has a five-point test to help determine whether someone is a dependent.
- The taxpayer must provide more than 50 percent of the individual’s support costs.
- The individual must either live with the taxpayer all year or be related (such as a parent, grandparent, stepparent, aunt or uncle).
- The individual’s gross income may not exceed the exemption amount, which is $3,500 for 2008.
- The individual must not file a joint return for the year (except to claim a refund of taxes withheld).
- The individual must be a U.S. citizen, a U.S. national, or a resident of the U.S., Canada or Mexico.
If an individual qualifies as a dependent, lives with the taxpayer more than half the year and physically or mentally cannot take care of themselves, the taxpayer may qualify for the dependent care credit for costs incurred to enable the taxpayer and spouse to go to work. That could translate into up to a $3,000 tax deduction.