Tax Laws for Taking Care of Grandparents

A person doesn't have to be a child for you to claim him or her as a dependent on your tax return. Anyone you support might qualify as a dependent. If you are paying the bulk of your grandparents' bills, and they have limited resources of their own, you can claim them as dependents and receive certain tax exemptions, deductions and credits for the money you spend to support them. In some cases, you can even realize tax benefits for taking care of grandparents who are not your dependents. However, you must ensure that the individual you are claiming is a qualifying relative dependent.

The U.S. tax code allows you to claim deductions if you are taking care of grandparents and claiming them as dependents on your tax return, provided they meet certain conditions. If you can claim them as dependents, you can reduce your taxable income by the amount of the dependent exemption. For the 2018 tax year, the exemption is either $1,050 or $350 plus the dependents qualifying income.

To claim your grandparents as dependents on a year's tax return, they don't have to live with you, but they must qualify under the support test and the income test. Under the support test, you must have provided more than half of your grandparents' support for the year. If your grandfather received $9,000 in Social Security benefits, for example, and had no other income, then you would have had to have paid more than $9,000 to support him to claim him as a dependent. Under the income test, a grandparent cannot have had gross income greater than the dependent exemption, which was $4,050 in 2017. The IRS definition of gross income includes all income that is not exempt from income tax. If your grandparent doesn't have to pay taxes on his Social Security benefits – which is often the case – then that money is not included in gross income. Wages from work, interest income and dividends from investments are all taxable, so they do count as gross income.

Medical expenses you pay out of pocket for your grandparents may be partially tax deductible. Under IRS rules, a grandparent's medical bills qualify for the medical expenses deduction if the grandparent is a dependent – or if the grandparent had too much gross income to be a dependent but meets other criteria for dependent status. For example, if you're providing more than half of your grandmother's support and she had $10,000 in taxable gross income, you can't claim her as a dependent, but you can claim a deduction for her medical expenses.

If a dependent grandparent lives with you, is physically or mentally unable to care for himself, and you pay someone to care for him while you work or look for work, you can take a tax credit for some of those expenses. As of 2017, the maximum credit was $1,050 for one grandparent, and $2,100 for two or more. In 2018, this credit was raised to $3,000 per individual. Child care credits for grandparents are also available. As with the medical expenses deduction, this credit is also available if your grandparent had too much gross income to be a dependent but met the other criteria for dependent status.

In general, if you can claim a deduction for a dependent's expenses under IRS rules, you can also claim it for a dependent grandparent. For example, if you are self-employed and have set up a health insurance policy in your business, you can deduct the full cost of the out-of-pocket premiums you pay for your family. That includes medical, dental and long-term-care coverage for yourself, your spouse and your dependents – and if a dependent grandparent is involved, that person, too. Or, say your grandmother wants to go back to school and you pay the bill – you can get the tax deduction. With people living longer it's not an impossible idea that grandparents may want to go back to school.

You can only deduct medical expenses greater than 7.5 percent of your adjusted gross income, and you must itemize your deductions. Using IRS Schedule A, add up the out-of-pocket medical and dental costs you paid for you, your spouse and all your dependents, including dependent grandparents. Calculate what 10 percent of your income is, and subtract that from your medical bills. The remainder is deductible.