The world of tax is constantly changing and dependents and dependency exemptions are no exception. In the past, you were able to claim dependents on your tax return; these included either your children, your dependent parents, or others that we will go into in a more detailed post later.
Claiming your dependents in the past would lead to a dependency exemption that was indexed for inflation, but in 2017 the amount was $4,050 per dependent. Each dependency exemption would reduce your taxable income.
In 2018 however, dependency exemptions are no longer available. To make up for this, the standard deduction was nearly doubled from $6,300 in 2017 to $12,000 in 2018 for single filers. The ones likely to benefit from this change are single filers with no dependents and the ones likely not to benefit are those that are married and who would otherwise claim multiple dependents.
Because of this change, you may no longer claim your dependent parents for the dependency exemption in 2018. However, there are some caveats to this:
The Child and Dependent Care Credit
Just because you no longer get to claim the exemption amount does not mean that the government doesn’t want to give you some tax breaks for helping mom and dad.
The Child and Dependent Care Credit is available for those that have to pay for their parents’ care so they are able to work. The credit is available to cover between 20% to 35% of the amount up to $3000 that was paid to care for you parents or other dependents. The amount that is covered depends on the income of the taxpayer claiming the dependent.
Because this is a credit and not a deduction, this credit reduces your tax liability, not your taxable income.
For more information on the Child and Dependent Care Credit, please consult the IRS publications.
The Medical Expense Deduction
If you have paid qualified medical expenses for your parents, you may be able to deduct them on your tax return. There are complex guidelines for this deduction, however in general, you may deduct the amount over 7.5% of the amount that is over your adjusted gross income.
In order to receive this deduction, your parent that you have paid the medical expenses for must be your dependent on your tax return.
Again, because of the complex nature of these deductions and credits, please consult the IRS publications if you feel you may qualify for them.
This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.