Today is Mother-in-Law’s Day. The day, created by the editor of a local newspaper in Amarillo, Texas, was first held on March 5, 1934, but was eventually moved to the fourth Sunday in October (insert random Halloween witch joke here).
Mothers-in-law don’t always have the best reputation. Many mother-in-law relationships are notoriously difficult, such as Ralph Kramden’s relationship with his own mother-in-law on “The Honeymooners.”
Alice: Now you listen to me, Ralph. My mother is coming here and you’re going to be nice to her.
Ralph: Be nice to her? That’s impossible! We don’t get along. We’re enemies, natural enemies. Like a boa constrictor and a mongoose. She hates me, Alice!
Lucky for me, my mother-in-law doesn’t hate me. And I don’t hate her. We get along just great.
In fact, as she grows older, my husband and I have been discussing the idea of her moving in with us (my father-in-law passed away last year). This isn’t novel. More families like mine are contemplating the best way to deal with aging parents, especially following the death of one parent. My husband and I are the “sandwich generation” – adults who find themselves caring for our children while, at the same time, keeping a watchful eye on our parents.
The financial implications of taking care of children and parents can be tough to sort out. On the tax side, a number of tax breaks – including the personal exemption amounts – depend on whether you can claim a person you support as your dependent. Generally, for U.S. tax purposes, a dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico (some exceptions apply for adopted children); have a valid tax ID number; and be either your qualifying child or your qualifying relative.
A person is your qualifying child if that person meets all of these tests:
- Relationship test. The child must be your child, stepchild, adopted child, foster child, brother or sister, or a descendant of one of these.
- Residence test. The child must have the same residence as you for at least half of the tax year.
- Age test. The child must be under age 19 at the end of the tax year; under age 24 and a full-time student for at least five months out of the year; or totally and permanently disabled.
- Support test. The child must not have provided more than half of his or her own support during the tax year.
- Return test. The child, if married, must not have filed a joint return with his or her spouse.
This being tax law, of course, caveats and exceptions apply (for example, college students may still be considered dependents even if they live away from home). There are also exceptions for other temporary absences: children who were born or died during the year, children of divorced or separated parents or parents who live apart, and kidnapped children.
But what about your parents or your in-laws? If you take care of a parent or in-law, you may be also to claim that person as a dependent as a qualifying relative. A person is your qualifying relative if that person meets all of these tests:
- Not a qualifying child test. A person is not your qualifying relative if he or she is your qualifying child or the qualifying child of any other taxpayer.
- Member of household or relationship test. To meet this test, a person must either live with you all year as a member of your household, or be related to you as your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild); your brother, sister, half brother, half sister, stepbrother, or stepsister; your father, mother, grandparent, or other direct ancestor, but not foster parent; your stepfather or stepmother; a son or daughter of your brother or sister; a son or daughter of your half brother or half sister; a brother or sister of your father or mother; or one of your in-laws (including your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law).
- Gross income test. To meet this test, a person’s gross income for the year must be less than $4,000. Gross income is all income in the form of money, property and services not exempt from tax. That means that Social [entity display=”Security” type=”section” active=”true” key=”/security” natural_id=”channel_3section_21″]Security[/entity] benefits are excluded if they are not taxable.
- Support test. To meet this test, you generally must provide more than half of a person’s total support during the calendar year.
You’ll notice there is no test for age. Unlike the criteria for determining whether a person might be a qualifying child, there is no age test for a qualifying relative. A qualifying relative can be any age – so yes, your older mother-in-law or parent would count so long as he or she meets the other criteria.
And no need to read through the piece again: residency is not a requirement to claim a dependent for a parent or in-law. Your parent, in-law or other qualifying relative doesn’t actually have to live with you: he or she can live in his or her own home, a nursing home or an assistance living facility. So even if you can’t live with your mother-in-law but you’re still taking care of her, you may still get a tax break.
If your parent or in-law meets the dependency tests, you can deduct a personal exemption amount for him or her on your own taxes. The exemption amount reduces your taxable income: the more dependents, the larger the potential deduction (yes, it’s really an exemption but it acts like a deduction). The personal exemption amount for 2015 is $4,000. However, phaseouts do apply as income gets bigger so be sure and check the income tables.
If your parent or in-law meets the dependency test, you can also deduct any medical expenses that you pay on his or her behalf. Remember, however, that you must itemize to claim medical expenses. Additionally, medical expenses are subject to a 10% floor, meaning that expenses must exceed 10% of your adjusted gross income before you can claim the deduction. While that threshold can seem quite high, paying the medical expenses (including insurance premiums and copays) for a parent may help you qualify for the deduction.
Even if your parent or in-law does not meet the dependency test, you may still be able to deduct those medical expenses that you pay on his or her behalf. For purposes of the medical expenses deduction, you can include medical expenses paid on behalf of another person if you paid at least half of their support during the year, even if that person doesn’t otherwise meet the dependency rules because of the gross income test (meaning that he or she received gross income of $4,000 or more in 2015), he or she filed a joint return, or you or your spouse could be claimed as a dependent on someone else’s return.
If your parent or in-law requires additional care, you may also be able to claim the child and dependent care credit. The credit is available to eligible taxpayers who pay expenses for the care of a qualifying individual while you work (or while you look for work). A qualifying individual includes a parent or in-law so long as the person is physically or mentally incapable of self-care (that includes caring for his or her hygiene or nutritional needs), has lived with you for at least half of the year and either is your dependent or could have been your dependent except that he or she is over the gross income limit or files a joint return, or you or your spouse could have been claimed on another taxpayer’s return. The available credit amount varies depending on the amount of expenses you pay and your adjusted gross income.
There may be other tax breaks available, too, depending on the kind of assistance (such as paying for college) that you’re providing for a parent or an in-law. You don’t have to live with your parents or in-laws in order to help out. Depending on how much assistance you’re providing, that could translate into a tax break (or two) for you and your family. Be sure to ask your tax professional for more information.Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.