Individuals within families oftentimes experience role reversals eventually. As parents reach an advanced age, the parents are more likely to become reliant on their children in various ways. Tax filers who provide financial support to either of their parents may be able to claim the parent as a dependent.
There are two types of tax dependents, and both types are more inclusive than their name implies. In addition to your own child, a qualifying child can include a sibling or any descendant of a sibling. A qualifying relative is a family member who is not a qualifying child, but in some circumstances, a qualifying relative can be an unrelated person.
Qualifying relative dependent
A parent may be claimed only as a qualifying relative. As with any qualifying relative, you must have provided over half of your parent's support for the tax year. There is a special residency provision applicable to certain qualified relatives. A parent does not have to live in the same residence as you to be claimed as a dependent.
In addition to the support requirement, there is an income threshold at which any individual can no longer be claimed as a qualifying relative. Your parent's taxable income must be less than $4,050 in order to be claimed as dependent. Tax-exempt income does not count toward the income cap. However, tax-exempt income received by your parent is considered to be part of their total support.
Multiple support agreement
Even if you provide less than half of the total support of a parent, you may still be able to claim them as a dependent. If two or more persons provide over half of the support, but no single person provides over half, you may enter into a multiple support agreement. Each person entering into the agreement must have provided at least 10 percent of the total support. The agreement works well in situations where a parent receives support from two or more children.
The individuals who provide support can decide among themselves who will claim the qualifying relative. A multiple support agreement requires the use of IRS Form 2120 with the tax return of the person claiming the dependent. Anyone paying less than 10 percent of your parent's support cannot be included in the multiple support agreement.
Each Form 2120 is valid for only one year, so your siblings who provide support may claim your parent in alternate years. Contact a tax service, such as Balkcom Pearsall & Parrish CPA's PA, for further advice on tax issues affecting families.