As the average age of the American populace continues to increase and the "Baby Boomer" generation edges ever closer to retirement, many aging parents find themselves in dependent relationships with their children. Whether due to poor health or financial hardship, thousands of elderly parents move in with their adult children each year. Although this process has been ongoing for many years, the growing complexities of the country's tax code and healthcare system make it very complicated.
If you provide material support for your aging parents, you may be tempted to claim them as dependents on your tax return. This may substantially increase the size of your tax refund each year. However, there are several legal hurdles to this potential arrangement. Before you can claim your parents as dependents for health insurance and tax purposes, you'll need to make sure that you clear each of them in turn.
First, your parents don't have to live with you in order to qualify as your dependents. If you provide a significant amount of their financial support or cover the bulk of their non-covered medical expenses, you may be able to claim them as your dependents. Since you'll need to provide at least half of their financial support, it may still be beneficial for them to move in with you. If they live with you and use the food and household supplies that you purchase on a regular basis, the amount of "support" that you can claim to provide for them will increase accordingly.
Your parents' individual incomes must also be less than the "dependency threshold." While this amount grows slightly each year as a result of inflation adjustments, it remains quite low. If either of your parents has a full-time job, it's unlikely that you'll be able to make the case for dependency. However, Social Security benefits do not count towards the dependency threshold. If the Social Security Administration is your parents' only source of income, you may still be able to claim them as dependents.
If they file their own joint tax returns, your parents can't be claimed as dependents. Before claiming them on your return, make sure that they're each filing as "single" taxpayers. Once you're in a position to claim them, you may begin to file your taxes as a "head of household" and further increase the potential size of your refund. This is possible regardless of your marital status.