More than 60% of baby boomers are actively helping a parent and half of them also have children under 25. These members of the “sandwich generation” – those supporting their parents and their own children – may be able to claim the up to $3,650 qualifying relative exemption for supporting their parents.
For many members of the “sandwich generation,” balancing the needs of their children and parents is something they do every day. With their predecessors and descendants squeezing them in the middle like pastrami on rye bread, they seek relief wherever they can get it – even from the IRS.
Luckily, these tax breaks could relieve some of the financial burden and put more money in their pockets.
Qualifying Relative Exemption
Generally, the eligible taxpayer must provide more than 50% of the financial support for eligible expenses such as food, lodging, clothing, education, medical and dental care, recreation and transportation. That a parent lives with the taxpayer is not required to claim the exemption – only that the taxpayer provide more than half of their financial support for eligible living expenses.
There are several tests that an individual must meet in order to be a qualifying relative of the taxpayer, including: The parent must meet the member of household or relationship test, and the gross income test. Additionally, the taxpayer must provide more than 50% of the support for the individual. Eligible expenses for calculating support include food, lodging, clothing, education, medical and dental care, recreation and transportation.
Child Tax Credit
The maximum Child Tax Credit is $1,000 (based on income and filing status) for each qualifying child under 17. Because this is a partially refundable tax credit, even taxpayers who do not owe taxes are eligible if they have earned at least $3,000 in 2010.
The Earned Income Credit (EIC) is a valuable credit for lower-income taxpayers who work. It provides a tax credit for one child of up to $3,050 and a maximum of $5,666 for three or more children, based on income and filing status. These Earned Income Credit and Child Tax Credit Tables for 2010 can help you determine how much you can receive in these child-related tax credits. Remember, tax credit is a dollar-for-dollar reduction of the tax.
Dependent Child Exemption
The $3,650 qualifying child exemption allows taxpayers to claim a dependent exemption for their child, stepchild, adopted child, eligible foster child, sibling or stepsibling, or a descendant of one of these.
Qualifying children generally must: Be under age 19 or under age 24 and a full-time student, and younger than the taxpayer, (or any age if permanently and totally disabled); live with the taxpayer for more than half the year; and not provide more than 50% of their own support for the year.
Child and Dependent Care Credit
The tax credit for child and dependent care expenses allows taxpayers to claim a credit for expenses paid for the care of children under age 13 and for a disabled spouse or dependent. There is a limit to the amount of qualifying expenses. The credit can be up to 35% of your qualifying expenses, depending upon your adjusted gross income.
There are numerous requirements to qualify, including: Dependent child must be age 12 or younger and the care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work. You must identify the care provider(s) on your tax return and it cannot be a spouse. Note that if you pay someone to come to your home and care for your dependent or spouse, you may be a household employer.
This helpful tax tip is provided by H&R Block’s Leigh Mutert, CPA and hrblock.com Community Manager. H&R Block tax preparation software can help you automatically determine which of these tax savings options you are eligible for, and includes forms needed. Or, if you have questions, you can get a free 30-minute consultation with a tax advisor at an H&R Block office near you.