Can My Grandma Be My Dependent?
Taking care of an elderly family member can be both rewarding and challenging. If your grandma depends on you for financial support or caregiving, you may be able to claim her as a dependent on your tax return. Here’s what you need to know about claiming grandparents as dependents.
What Are the Rules for Claiming a Dependent?
The IRS has specific guidelines that must be met in order to claim someone as your dependent:
- Relationship Test – The dependent must be related to you in one of these ways: your child or descendant of your child, your sibling or stepsibling, your parent or ancestor of your parent, your stepparent, your niece/nephew, your aunt/uncle, or your in-law. Grandparents are considered direct ancestors, so they qualify under the relationship test.
- Residency Test – The dependent must live with you for more than half of the year. Exceptions are made for temporary absences due to education, medical care, military service, or detention in a juvenile facility. Your grandma must live in your home for at least 6 months + 1 day to meet this test.
- Support Test – You must provide more than 50% of the dependent’s total financial support for the year. Support includes food, housing, medical/dental care, education, clothing, transportation, recreation, etc. You’ll need to calculate the amount you contribute to your grandma’s expenses to determine if it exceeds 50%.
- Income Test – The dependent’s gross income for the year must be below the personal exemption amount ($4,050 for 2017). Your grandma’s total income from Social Security, pensions, interest, dividends, and other sources must be under this threshold.
- Citizenship Test – The dependent must be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada/Mexico. Your grandma must meet one of these citizenship/residency requirements.
How Do I Claim My Grandma as a Dependent?
If your grandma qualifies as your dependent based on the IRS guidelines, here are some tips for claiming her on your taxes:
- When filing your tax return, you’ll list your grandma as a dependent on Form 1040.
- On Form 1040, check the box that says “Someone can claim you as a dependent.” Your grandma cannot claim the personal exemption for herself if you are claiming her.
- You may need to provide your grandma’s Social Security number or Individual Taxpayer Identification Number (ITIN) when completing Form 1040.
- If you plan to e-file your tax return, notify your grandma that her name/SSN will be included on your return. The IRS requires this for identification purposes.
- You may need to provide additional tax forms to support your claim, such as Form 2120 if you are claiming an exemption for a multiple support agreement.
- If your grandma lived with you and your spouse, consult IRS Publication 501 regarding special rules for married couples filing jointly. You and your spouse may need to divide the dependent claim.
- Keep records proving you provided more than 50% support for your grandma, in case the IRS requests documentation. Receipts for groceries, medical bills, rent/mortgage payments, etc can help verify your contributions.
How Does Claiming a Dependent Grandparent Benefit Me?
Claiming your grandma as a dependent can provide several tax advantages including:
- Personal Exemption Deduction – You can deduct $4,050 from your taxable income for each dependent you claim. This deduction is especially valuable if it helps you move into a lower tax bracket.
- Child Tax Credit/Credit for Other Dependents – For each qualifying dependent, you may claim up to $1,000 child tax credit or a $500 credit for other dependents. Your grandma is considered an “other dependent.”
- Earned Income Tax Credit – Having 3 or more qualifying dependents may increase your EITC, which is a refundable tax credit for low-to-moderate income workers.
- Head of Household Filing Status – If your unmarried and provide a home for a dependent parent, you may qualify for Head of Household status, which has higher standard deductions than Single filing.
- Medical Expense Deduction – If you claim your grandma as a dependent, you may be able to deduct medical expenses you paid for her, even if she does not live with you.
- Exclusion from “Kiddie Tax” – Children are taxed at their parent’s rate on any unearned income over $2,100. This does not apply if the child is supporting a dependent, like a grandparent.
- Other Deductions/Credits – Claiming a dependent may help you qualify for the child and dependent care credit, education credits, medical savings accounts, and exclusion from the Net Investment Income Tax.
Are There Downsides to Claiming Grandparent Dependents?
While claiming elderly relatives as dependents can certainly help reduce your tax bill, there are some potential drawbacks to consider as well:
- It may preclude your grandma from claiming personal exemptions and standard deductions on her own return. Run the numbers both ways to see which filing status benefits your family the most.
- If your grandma has significant medical expenses, it may be financially better if she claims them on her own return rather than you claiming her as a dependent.
- Claiming dependents reduces eligibility for certain tax credits like the Premium Tax Credit for health insurance purchased through the Marketplace.
- It could negatively impact your grandma’s ability to claim tax benefits if she is also supporting a spouse or dependent grandchildren. Consult a tax professional about coordination.
- If your income is too high, your grandma may lose eligibility for assistance programs like Medicaid, subsidized housing, etc if she is considered your dependent.
- It may not benefit you to claim the dependency exemption if you use the standard deduction. Run the numbers to see if you’d benefit from itemizing deductions instead.
What if I Share Support of My Grandparent with Siblings?
Sometimes multiple family members contribute financially to a grandparent’s care. Here are some options when grandparents have multiple supporters:
- Multiple Support Declaration – With this option, one family member claims the personal exemption for the grandparent as long as they provide more than 10% of the total support and the combined support from others exceeds 50%.
- Pro-Rated Dependency – Each contributor claims an exemption for the grandparent proportional to the amount they contributed. For example, if you provided 25% of total support, you can claim 25% of the $4,050 personal exemption.
- Alternating Years – Family members take turns claiming the grandparent as a dependent each year to share the tax benefits. Make sure to coordinate so more than one person doesn’t claim them in the same year.
- Tax Planning Meeting – Sit down as a family and determine the best allocation of the dependent exemption based on incomes, number of other dependents, and tax bracket. Revisit this each year.
No matter how you share the dependent claim for a grandparent, be sure to communicate with siblings to avoid duplicate filings. Save receipts proving your contributions in case you get audited.
Are There Special Rules for Supporting Grandparents in My Home?
If your grandma lives with you full-time, be aware of a few special rules:
- Dual Residency – If you share a home with a grandparent, you and your spouse may both claim them as a dependent if you meet the other tests. You’ll just need to pro-rate any credits based on the percentage provided.
- Difficulty of Care – If caring for your grandparent results in extra costs for things like home healthcare, hand rails, ramps, or medical transportation, discuss these expenses with your tax preparer.
- Granny Pods/Tiny Homes – If you purchased a small home specifically for a grandparent to reside next to you, there are potential medical expense deductions. Consult IRS Publication 502.
- Home Improvements – If you renovated your own home to accommodate an elderly grandparent, medical expense deductions may apply to things like wheelchair ramps, comfort height toilets, and grab bars.
- Health Insurance – If a grandparent is your dependent, medical expenses paid out of your pocket on their behalf may be deductible if you itemize. Review IRS Publication 502.
- Exemptions – Special rules allow exemptions for relatives that live with you full-time, even if you cannot financially support them on your own. See IRS Publication 501.
Key Takeaways About Claiming Grandparent Dependents
- Grandparents must meet relationship, residency, support, income, and citizenship tests to qualify as your tax dependent.
- Tax benefits include exemptions, credits, deductions, and potentially lower tax rates. Compare filing both ways.
- Share claims with multiple caregivers through declarations, alternating years, pro-rated splits, or tax planning.
- Special rules exist for in-home care and improvements that benefit elderly dependents.
- Weigh impacts to grandparent’s individual return and eligibility for low-income programs.
- Keep thorough records of support contributions in case the IRS requests proof.
Consulting a Tax Professional
Determining the optimal tax filing status that benefits your whole family can be complex when claiming a grandparent as a dependent. Small details like living arrangements, sources of income, and types of expenses contributed can impact the analysis significantly. Consulting an accountant or enrolled agent for tax preparation advice is highly recommended when supporting an elderly relative. A qualified tax professional can:
- Properly value the care and financial support you provide.
- Recommend the best dependency claiming strategy for your situation.
- Ensure accurate, compliant handling of credits, deductions, and exclusions.
- Avoid errors that could trigger an audit or penalties.
- Spot opportunities to reduce your tax liability that you may overlook.
- Coordinate sharing of exemptions among multiple caregivers.
- Illustrate the pros/cons of changing tax elections each year.
- Plan timing of medical expenses and deductions for optimal advantage.
- Explain impacts to the grandparent’s individual tax return.
- Determine if grandparent still qualifies for low-income assistance programs.
- Address complexities if you divorce or grandparent passes away.
- Keep required documentation to substantiate the dependent claim.
Though hiring a tax preparer comes with additional cost, having personalized expert advice can maximize tax savings and ensure full compliance with IRS rules for claiming relatives as dependents. Investing in professional tax help gives peace of mind that you are optimizing the tax benefits available to your family.
Questions to Ask a Tax Pro About Grandparent Dependents
When meeting with a tax professional, come armed with the following questions:
- Based on grandparent’s income and expenses for the year, does it make sense to claim them as my dependent?
- Should I claim my grandparent’s personal exemption, or are they better off claiming it themselves?
- How much of the $4,050 personal exemption can I claim if splitting with siblings?
- Will I qualify for Head of Household filing status? Married Filing Jointly?
- How do I properly calculate medical expenses paid out of pocket for grandparent?
- Will I qualify for any tax credits due to the dependent claim?
- Should I itemize or take the standard deduction?
- Will claiming my grandparent impact eligibility for any low-income assistance programs?
- What documentation should I maintain in case of an IRS audit?
- What do I need to do if my grandparent passes away before the end of the tax year?
- What reporting is needed if my spouse and I both provide caregiving and financial support?
- Can you review my grandparent’s individual return to coordinate the dependency claim?
Getting personalized answers to these questions from an experienced tax pro can help you navigate the complex IRS rules around claiming relatives as dependents.
Red Flags That You May Need Professional Help
Some situations that involve claiming a grandparent dependent are tricky enough to merit the help of a tax professional:
- Multiple Caregivers – If siblings/other family members share grandparent expenses, determining who claims the exemption and how to split it up can get very complicated.
- High Medical Expenses – If your grandma has significant healthcare costs and itemizing is needed to deduct expenses, professional expertise is key.
- Changes in Living Situation – If a grandparent moves in and out of your home during the year or passes away, it can impact tax return reporting.
- Divorce – Claiming grandparents as dependents often requires tax coordination between spouses/ex-spouses that experts can assist with.
- Government Benefits – If your grandparent relies on Medicaid, Social Security, housing assistance or other low-income programs, claiming them could affect eligibility without proper planning.
- Multiple Dependents – If you support several family members in addition to a grandparent, determining optimal exemptions is difficult.
- Audit Red Flags – Claiming relatives in non-traditional situations raises audit risk, making documented substantiation critical.
Even if your situation seems straightforward, consulting a tax preparer provides an extra layer of review to catch any potential issues. If your gut feeling is that your situation is complex, don’t hesitate to seek professional advice right from the start.
Tips for Choosing a Tax Pro
Not all tax preparers are created equal, so it pays to be selective when choosing someone to handle your grandparent dependent claim:
- Look for an Enrolled Agent (EA) credential, which requires testing and certification on complex returns.
- CPA (Certified Public Accountants) also have advanced tax training and education requirements.
- Find someone with extensive experience preparing returns with rental income, household employees, business activities, etc if your return is complicated.
- Ask about their audit support policies – will they represent you if your return gets flagged? Is there an extra fee?
- Interview multiple preparers before choosing one. Ask lots of questions to gauge their experience.
- Check references from other clients to learn about their reputation and service.
- Find out upfront what the total fees will be, including add-on charges for extra forms, audits, etc.
- Look for accessible, responsive service such as evenings/weekends and timely email/phone support.
- See if they take a holistic approach to family taxes by reviewing your spouse and dependents’ returns too.
- Choose someone who explains things in simple terms – you shouldn’t feel more confused after talking to a tax pro!
Taking the time to find the right tax preparer for your family’s situation will give you confidence and peace of mind that your returns are optimized, compliant and audit-proof.
Tax Filing Tips for Grandparent Caregivers
Here are some best practices for taxpayers who financially support grandparents:
- Collect data on grandparent’s Social Security income, pensions, interest income, and any other earnings for the year. You’ll need totals to assess support tests.
- Track support expenses like rent, groceries, medical bills, insurance premiums, transportation, clothing, and other costs paid. Aim for more than 50% support.
- Gather citizenship documents for the dependency claim like Social Security cards, ITIN paperwork, and proof of residence if needed.
- Review eligibility for tax benefits like EITC, child tax credit, dependent care credit before filing to maximize savings.
- Coordinate with siblings/others that provide grandparent support to determine optimal exemption allocation.
- Assess impact on grandparent’s own individual tax filing. Make sure claimed exemption won’t negatively affect them.
- Consult with tax pro to discuss declaring multiple support, pro-rated exemptions, or alternating years between caregivers.
- Minimize audit risk by keeping thorough documentation on expenses, living arrangements, payments, and income sources.
- Check for tax notices after filing in case IRS flags return for proof of dependency relationship or support contributions.
- Re-evaluate annually – circumstances change over time so the ideal filing approach one year may differ the next.
With the right tax preparation advice and diligent financial recordkeeping, caregivers can ensure that IRS dependency rules fully benefit multigenerational families.
tax benefits of claiming grandparents as dependents
Claiming an elderly loved one as a dependent can provide meaningful tax savings beyond just exemptions. Here are some valuable tax credits and deductions to explore if supporting a grandparent:
Child Tax Credit/Credit for Other Dependents
Taxpayers who claim children under 17 as dependents can benefit from up to $2,000 per child with this refundable credit (up to $1,400 refundable). Those with dependents age 17 and older who do not qualify for the CTC may claim a $500 non-refundable Credit for Other Dependents instead. Grandparents and seniors qualify as “other dependents”, making this tax credit helpful for their caregivers.
Earned Income Tax Credit
Families receive Earned Income Tax Credit funds from the government if they meet income limits and have qualifying children. Providing over half the support for one dependent can increase EITC by up to $3,468 . Having 3 or more dependents may boost the credit $5,716 more under the maximum allowances. Claiming an elderly grandparent along with children can potentially lift taxpayers into a higher EITC bracket.
Medical Expense Deduction
Taxpayers who itemize deductions get a break on excessive medical costs for themselves, spouses and dependents. With a senior grandparent likely to have significant healthcare expenses, claiming them as a dependent provides an avenue to write off their uninsured medical, dental, prescription, transportation and certain long-term care costs once totals exceed 7.5% of adjusted gross income.
Head of Household Filing Status
A taxpayer providing the main home for a dependent relative may file as Head of Household instead of Single. This status carries a higher standard deduction ($18,350 vs $12,200 for 2017), making it more valuable than filing Single for certain unmarried taxpayers with dependents.
Here’s more on potential tax benefits of claiming grandparents as dependents:
Exclusion from Kiddie Tax
Children subject to the “kiddie tax” have unearned income like investments taxed at their parent’s rate if over $2,100. However, a child under 18 is exempt from the kiddie tax if they provide more than half their own support OR they support a dependent like a grandparent. This saves them from higher taxation.
Medical Savings Accounts
Taxpayers with a high deductible health plan may open a Health Savings Account (HSA) or Medical Savings Account (MSA) which provides tax deferred growth. Claiming a senior grandparent as a dependent can qualify certain taxpayers to open these accounts if not otherwise eligible.
Education Tax Credits
There are two tax credits available for college expenses – the American Opportunity Credit and the Lifetime Learning Credit. While income limits apply, some filers become eligible for these savings if they claim dependents such as grandchildren or grandparents.
Exclusion from Net Investment Income Tax
Higher income taxpayers may owe a 3.8% tax on certain investment income above set thresholds. Taxpayers are exempt from this surtax if their modified adjusted gross income falls beneath the limits after claiming child and elderly dependent exemptions and deductions.
Imputed Income Exclusion
If you care for a grandparent in your home, the value of services like housing, food and care do not have to be counted as taxable income for you (“imputed income”). Claiming them as a dependent provides tax exclusion for this in-kind income.
Consult a tax professional to ensure all potential credits, deductions, filing statuses, and exclusions are used to maximize the tax relief available when providing eldercare. With proper claiming of grandparents as dependents, savvy taxpayers can save hundreds or even thousands on their annual tax bills.