How Gen X Files Their Taxes

Gen X

Caregivers manage tax planning while caught in the middle

by NATP staff

Situated between the post-World War II baby boomers and the digital-native millennials, Gen X has earned an interesting collection of nicknames. Due to their smaller birth rate compared with boomers and millennials, they are also known as the middle child generation or baby bust generation. They are also called the sandwich generation, as they care for children and aging parents.

Their early independence earned them the label latchkey kids, while their acceptance of 24-hour music TV nicknamed them the MTV Generation. These names explain why Gen X often slips beneath the cultural radar, even though its members helped shape everything from grunge music to the first personal computer boom.

Gen X’s major tax planning considerations

Generation X, born between 1965 and 1980, is now between 45 and 60 years old. Currently in their peak-earning years but facing the prospect of being unprepared for retirement, many are feeling the squeeze. According to a 2023 Northwestern Mutual report, 55% of this generation worry that they won’t be financially able to retire. On average, they estimate a 46% chance they could outlive their savings. This worry earned them another nickname, Generation anXious.

With looming retirement and responsibilities at both ends of the family spectrum, Gen Xers deal with specific tax-related challenges, including:

• Retirement savings options, such as catch-up contributions

• Tax benefits for caregivers, including the qualifying relative exemption, medical expense deduction, and the child and dependent care credit for adult dependents

Johnson family

How Gen X Files Their Taxes

The Johnson family’s Generation X members include three adults whose lives and taxes look a bit different:

• Jennifer, 50, is a second-grade teacher and a part-time server at a neighborhood brewery run by friends and colleagues. Divorced, she’s the primary caregiver for two children: her son, who’s now navigating college life, and her daughter, who is still in high school. Jennifer receives child support payments for her daughter from her ex-husband. She also helps her dad, Robert, who is 80.

  
  

• Sarah, 45 is Jennifer’s niece. She and her husband, Jason, 48, work full-time and, without children, focus on building equity in their home. They’re steadily chipping away at their mortgage and planning for the future. They also provide financial assistance to Robert, Sarah’s grandfather.

Retirement planning

How Gen X Files Their Taxes

Many Gen Xers are caught between supporting both aging parents and growing children. This may make it hard to focus on retirement savings; however, refocusing to retirement savings may lead to financial security tomorrow. Small, consistent contributions now can help build a more stable future, ensuring greater independence in later years.

Jennifer

Jennifer is an example of the pressures the sandwich generation feels. Like many in this generation, she may sacrifice saving for her retirement (and security) to cover today’s expenses.

To stay on track, she should maximize her retirement contributions. If she can’t maximize, she should fund as much as possible. As a public school teacher, Jennifer can contribute to her school’s 403(b) plan and, if eligible, a traditional IRA or Roth IRA. After age 50, she qualifies for catch-up contributions (an extra $7,500 in a 403(b) and $1,000 in an IRA for 2025).

Also, for plan years beginning after 2024, there is improved coverage for part-time workers. She could check with her employer and see if she is eligible to participate in the employer’s 401(k), if they have one.

Sarah

Sarah and Jason are at the other end of the Gen X spectrum: no dependents, steady dual incomes and focus on growing their home equity. They avoid many caregiving pressures but pitch in financially to help Jennifer care for her father, Sarah’s grandfather. With planning, they should ensure they don’t defer retirement savings in favor of paying down their mortgage too aggressively. Like Jennifer, they should check that they are maximizing retirement contributions. Given their ages, they will soon qualify for catch-up contributions after age 50.

Contribution limits

Employees can save for retirement through tax-deferred elective deferrals to plans such as 401(k)s, SIMPLE IRAs (Savings Incentive Match Plans for Employees), SEPs (Simplified Employee Pension plans), 403(b)s, and 457 plans. These contributions are subject to annual IRS limits and overall caps on total contributions.

To ensure fairness, the IRS applies nondiscrimination tests to prevent plans from favoring higher earners. As a result, some high-income employees may need to reduce or return excess contributions—even if the plan allows contributions of, say, 15% of pay. Employers can avoid this situation by providing matching contributions, which also satisfy these rules and allow maximum contributions [IRS Notice 98-52].

In addition, some plans may impose their contribution limits, often based on a percentage of compensation. Many employers also offer financial education or access to advisors to help employees make informed retirement decisions.

Employer-sponsored defined contribution plans

Many Gen Xers entered the workforce as employers transitioned from traditional defined-benefit pension plans [§414(j)] to defined-contribution plans [§414(i)], shifting retirement saving responsibilities to employees.

Defined-benefit plans promise a fixed retirement payout, typically funded by the employer, with the employer bearing the investment risk. In contrast, defined-contribution plans, such as 401(k), 403(b), profit-sharing, and employee stock ownership plans, do not guarantee a set benefit. Instead, employees and/or employers contribute to an individual account, and the retirement amount depends on contributions and investment performance.

Here’s the text exactly as it appears in the article:

Entity type	Deduct employee contributions on:	Owner/partner contribution reported on:
C corporation	Form 1120, U.S. Corporation Income Tax Return	• All employer contributions (for owners or employees) are taken as a deduction on the corporate return; Form 1120, Line 23
S corporation	Form 1120-S, U.S. Income Tax Return for an S Corporation	• All employer contributions (for owners or employees) are taken as a deduction on the corporate return; Form 1120-S, Line 17   • There is no reporting line on Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, etc.
Partnership	Form 1065, U.S. Partnership Return of Income	• Schedule K-1 (Form 1065), Box 13, Code R   • Form 1040, U.S. Individual Income Tax Return
Sole proprietor	Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)	• Schedule 1 (Form 1040), Line 16

This shift means employees now carry the investment risk. Qualified plans generally fall into three categories: defined benefit, defined contribution, and SEP or SIMPLE IRAs. As defined-benefit plans have become rare in the private sector, this article will focus on the others.

Employer deduction rules

A defined contribution plan includes limits on employer deductions, annual contributions to each participant’s account, and total contributions across all plans sponsored by the same employer.

Deducting employer contributions

Employers can deduct contributions to defined-benefit plans, defined contribution plans, SEPs and SIMPLE plans if the contributions are considered ordinary and necessary business expenses [§404(a)]. Deductions apply to amounts paid during the tax year, including those made by the extended due date of the return [§404(a)(6)]. Excess contributions may be carried forward, subject to applicable limits.

Where businesses’ deduction contributions are listed in the table above.

Note: Contributions made for partners are generally treated as guaranteed payments and reported in Box 4a-c of each partner’s Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.

The partner then deducts them on their Schedule 1 (Form 1040), Additional Income and Adjustments to Income, Line 16.

Annual contribution limits to a participant’s account

Annual additions to a participant’s account, including employer contributions, employee contributions, and forfeitures, are limited per §415(c). For 2025, the limit is the lesser of $70,000 or 100% of the participant’s compensation [Notice 2024-80]. Rollover contributions are excluded from this limit.

Catch-up contributions

Catch-up contributions ($7,500) by participants who are 50 or older by the end of the year are allowed above the contribution limitation. These catch-up contributions are not included toward the $70,000 limit [Reg. §1.415(c)-1(b)(2)(ii)(B)]. For someone 50 or older, the $70,000 limit is $77,500 ($70,000 + $7,500).

The maximum annual catch-up contribution of $7,500 does not apply to SIMPLE 401(k) plans or SIMPLE IRA plans. The maximum annual catch-up contribution for SIMPLE 401(k) plans and SIMPLE IRA plans is $3,500.

New for 2025

Beginning in 2025, employees who are age 60, 61, 62 or 63 (60-63) during the calendar year will be able to put away even more in catch-up contributions, if allowed by the plan.

• SIMPLE 401(k) and SIMPLE IRA plans: The cap becomes the greater of $5,000 or 150% of the 2025 age 50 catch-up limit, which is $5,250 (150% x $3,500) for 2025

• The total possible employee contribution is $21,750 ($16,500 + $5,250)

• The limit is indexed for inflation starting in 2026

• All other qualified plans: The cap rises to the greater of $10,000 or 150% of the 2024 age 50 catch-up limit, which is $11,250 (150% x $7,500) for 2025

• The total possible employee contribution is $34,750 ($23,500 + $11,250) for 2025

• The limit is indexed for inflation starting in 2026

Note: In the year the participant turns 64, the “age 50” limits will apply. If a workplace plan offers both the age 50 catchups or the new catchups for those 60-63, the employee cannot use both the extra contributions. Employees should contact their plan administrator if they have questions requiring additional information.

Catch-up contributions give employees age 50 and older the ability to save more. Because these amounts are excluded from most nondiscrimination tests that normally apply to 401(k) plans, SEPs and SIMPLE IRAs, higher-paid employees can generally take advantage of the full catch-up allowance. Eligible employees can defer compensation up to the maximum catch-up contribution amount, plus the amount they would otherwise have been able to defer without the catch-up provision.

Employer matches on catch-up dollars do not get this same relief. They must satisfy all regular nondiscrimination rules. Employees who are (or will be) highly compensated should check with their plan administrator to see if they could be affected.

New for 2026

For tax years beginning after Dec. 31, 2025, catch-up contributions to 401(k) plans, 403(b) plans or 457(b) governmental plans by participants whose Social Security/Medicare tax (FICA) wages for the insurance calendar year that exceed $145,000 (as preindexed for inflation) will be subject to mandatory after-tax (Roth) treatment. Stated another way, employees making more than $145,000 in the prior year (adjusted upwards for inflation), will need to make their catch-up contributions after tax to a designated Roth account (e.g., Roth 401(k)).

The information in the table below summarizes the retirement plan contributions for 2025.

With 457(b) plans and 403(b) plans, participants can reach a certain age (pre-retirement catch-up provision). Participants should contact the plan sponsor for more information. See Reg. §1.457-4(c)(3); §457(b)(3); §402(g)(3), §402(g)(7) and Reg. §1.403(b)-4(c)(3).

Plan	Employee elective deferral contribution limit	Employee elective deferral age 50 catch-up limit	Employee elective deferral age 60-63 catch-up limit	Contributions
457(b)	$23,500	$7,500	$11,250	Employee  • Pre-tax basis  Employer  • Yes
401(k)	$23,500	$7,500	$11,250	Employee  • Pre-tax basis  • Some employers allow after-tax contributions  Employer  • Yes
403(b)	$23,500	$7,500	$11,250	Employee  • Pre-tax basis  • Some employers allow after-tax contributions  Employer  • Yes

Example: §415(c) Sarah and Jason Johnson

Sarah (45) and Jason (48) of the Johnson family are both employees who participate in their respective employers’ 401(k) plans.

	Sarah	Jason
2025 compensation	$80,000	$100,000
Employee 401(k) deferral	$23,500	$23,500
Employer match (4%)	$3,200	$4,000
Forfeitures allocated	$300	$300
Total 2025 additions	$27,000	$27,800
§415(c) limit	$70,000	$70,000
Under the limit?	Yes	Yes

Sarah and Jason’s total additions (employee + employer + forfeitures) are well below the $70,000 limit for 2025. Neither has reached the age of 50, so they are not eligible for catch-up contributions. Once they turn 50, catch-up contribution dollars (currently up to $7,500) won’t count against the $70,000 limit.

Overall contribution limits

When an employer sponsors both a defined benefit plan (e.g., pension) and one or more defined contribution plans (e.g., 401(k)), and employees participate in multiple plans, a combined deduction limit applies. Employer contributions to defined contribution plans are limited to 25% of eligible compensation (subject to IRS caps), while defined benefit plan deductions are based on actuarial calculations [§404(a)].

401(k) plans

401(k) plans are commonly used by clients and allow employees to make pre-tax or after-tax contributions, subject to annual limits. Distributions of pre-tax contributions are generally restricted until retirement, death, disability, separation from service, or age 59½.

Plans may also include a designated Roth account [§402A], where employees pay tax on contributions upfront, but qualified distributions, including earnings, are tax-free. The Roth account must be separately tracked, and employees can contribute to both Roth and traditional 401(k) accounts within the annual limit.

Key items from an employee’s perspective include:

Item	Detail (2025)
Employee elective contribution (combined with all designated Roth and traditional 401(k) plans)	Deferral up to $23,500 if under age 49  $31,000 if age 50 or older (excluding 60-63)  $34,750 if 60-63
Employer non-elective contribution	Lesser of 25% of participant’s compensation, reduced by any elective de-ferrals
Maximum compensation for a match	$350,000

Item	Rose (age 45)	Bill (age 50)	Keith (age 60)
Compensation (matchable pay)	$100,000	$100,000	$100,000
Roth 401(k) deferral	$15,000	$16,000	$9,250
Traditional 401(k) deferral	$8,500	$15,000	$25,500
Total deferred (Roth + traditional)	$23,500 (2025 max under age 50)	$31,000 ($23,500 + $7,500 age 50 plus catch-up)	$34,750 ($23,500 + $11,250 age 60-63 catch-up)
Employer match (4% of compensation)	$4,000	$4,000	$4,000
Total 2025 additions	$27,500 ($23,500 + $4,000)	$35,000 ($31,000 + $4,000)	$38,750 ($34,750 + $4,000)
§415(c) limit	$70,000	$70,000 ($7,500 is ignored)	$70,000 ($11,250 is ignored)
Under the limit?	Yes	Yes	Yes

Example: 401(k) and qualified Roth contribution program

A hypothetical employer has a 401(k) plan with a qualified Roth contribution program. Assume a 4% employer match. The table above illustrates how the limitations work by participant age.

Each participant can allocate their full elective deferral between Roth (after-tax) and traditional (pre-tax) contributions in any proportion. The total limit applies regardless of how the contributions are split. For those ages 50 or older, catch-up contributions ($7,500 or $11,250) are excluded from the §415(c) cap, allowing total contributions to exceed $70,000 without reducing the employer’s contribution limit. Employers may also add profit-sharing or other non-elective contributions up to the $70,000 cap.

SEP and SIMPLE plans

Two common alternatives for workers without access to a 401(k) are SEP and SIMPLE IRA plans.

A SEP IRA allows employers to contribute up to 25% of an employee’s compensation. SIMPLE IRAs are available to businesses with 100 or fewer employees and include employer matching of salary deferrals. A SIMPLE 401(k) functions similarly but automatically meets 401(k) nondiscrimination rules.

Employers must amend SEP or SIMPLE IRA plans to permit catch-up contributions for employees age 50 or older. Beginning in 2023, employees may also elect to treat SEP or SIMPLE IRAs as Roth IRAs [§408(k)(12)].

For Gen Xers in their catch-up years, a SEPIRA can be a double-edged sword. Generous employer-only contributions in boom years can add significant money to

Plan	Employee elective deferral contribution limit	Employee elective deferral age 50 catch-up limit	Employee elective deferral age 60-63 catch-up limit	Contributions
SEP	N/A	N/A	N/A	Employee  • Cannot make  Employer  • Up to 25% of eligible employee compensation or up to $70,000
SIMPLE IRA	$16,500	$3,500	$5,250	Employee  • On a pre-tax basis  Employer  • Yes, the Employer is generally required to match each employee’s salary reduction contributions on a dollar-for-dollar basis up to 3% of the employee’s compensation. This requirement does not apply if the employer makes 2% nonelective contributions instead.

retirement balances, but the lack of employee deferrals means savings may stall during downturns. Personal planning intentions.

The table at the bottom of the previous page is an example of SEP vs. SIMPLE IRA contribution limits.

Note: For tax years beginning after Dec. 31, 2023, eligible employers may make additional nonelective contributions to SIMPLE plans. Employee contribution limits increase. For employers with up to 25 employees earning at least $5,000, elective and catch-up limits rise by 10%. Employers with 26 to 100 employees can opt into the higher limits if they provide a 4% match or a 3% nonelective contribution [§408(p)(2)(E)(i)].

Traditional and Roth IRAs

Gen Xers are still in the contribution phase regarding retirement savings. IRAs let taxpayers grow retirement savings by offering valuable tax advantages. Two options available to most taxpayers are traditional and Roth IRAs.

Traditional IRA

Starting in 2020, individuals of any age can contribute to a traditional IRA if they have earned income from wages or self-employment.

For 2025, the contribution limit is the lesser of earned income or $7,000 ($8,000 if age 50 or older) [§219(b)(1); IRS Notice 2024-80]. However, the spouse deduction may phase out if the taxpayer or their spouse is covered by a workplace retirement plan [§219(g)].

If neither spouse is covered, the full deduction is allowed. Nonworking spouses may contribute based on the working spouse’s income, and their deduction may still be allowed even if the working spouse’s is not. For 2025, the spouse deduction phase-out begins at $236,000 for nonworking spouses and $126,000 for active participants.

Note: While IRA contribution limits are generally based on AGI, some taxpayers must use modified AGI. Those who exclude foreign income or housing, claim adoption assistance, deduct student loan interest or IRA contributions, or exclude U.S. savings bond interest for education must add these amounts back to calculate their income limit for IRA contributions.

If the taxpayer is covered under an employer plan for the year, their employer will check the “Retirement Plan” box in Section 13 of the taxpayer’s Form W-2, Wage and Tax Statement.

Traditional IRA contributions can be fully, partially, or non-deductible. The first step is determining the contribution limit, which can be found in IRS Notice 2024-80 or calculated using tax software. A table with the 2025 MAGI limits for IRA contributions appears later in this article.

If a workplace retirement plan covers neither the taxpayer nor their spouse, contributions are fully deductible regardless of modified AGI.

Contributions must be made by the tax return due date, not including extensions. For 2025 contributions, the deadline is generally April 15, 2026 [§219(f)(3)]. A deduction can be claimed before the contribution is made, as long as the contribution is made by the due date [Rev. Rul. 84-18]. Form 8606 is required for nondeductible contributions, but no form is needed for deductible ones.

Sometimes, even when a deduction is allowed, it may not be beneficial. For example, if the taxpayer may be in a taxable income, treating the contribution as nondeductible can establish basis in the IRA and reduce future tax. Alternatively, contributing to a Roth IRA may offer greater long-term benefits, depending on the taxpayer’s goals. Traditional IRA distributions are taxable, but qualified withdrawals are typically tax-free if they include nondeductible contributions.

Roth IRA

A Roth IRA is designated as such when opened. Contributions are not deductible, but earnings grow tax-free, and qualified withdrawals of contributions and earnings are tax-free. Except as noted in §408A, the rules for traditional IRAs also apply to Roth IRAs [§408A(a)].

Key differences include the fact that Roth contributions are never deductible and are subject to separate MAGI thresholds. Traditional IRAs can be converted to Roth IRAs if certain conditions are met.

Roth IRA contributions are subject to the same dollar limits as traditional IRAs. For married couples filing jointly, one spouse’s earned income can be used to support the other spouse’s contribution.

2025 MAGI Limitations for IRA Contributions

Traditional IRA Contributions – Deductible Contributions

• Taxpayer and spouse not covered by a retirement plan

  
  

  • Single/Head of Household: No limit

  • Married Filing Jointly: No limit

  • Married Filing Separately: No limit

  
  

• Taxpayer covered by a retirement plan

  
  

  • Single/Head of Household: $79,000 to $89,000

  • Married Filing Jointly: $126,000 to $146,000

  • Married Filing Separately: $0 to $10,000

  
  

• Taxpayer not covered by a retirement plan, spouse covered

  
  

  • Single/Head of Household: N/A

  • Married Filing Jointly: $236,000 to $246,000

  • Married Filing Separately: $0 to $10,000

    
    

Traditional IRA Contributions – Nondeductible Contributions

No income limit.

Roth IRA Contributions

• Single/Head of Household: $150,000 to $165,000

• Married Filing Jointly: $236,000 to $246,000

• Married Filing Separately: $0 to $10,000

Contribution Limits

Up to $7,000 total ($8,000 if age 50 or older) for traditional and Roth IRAs combined, split in any way. Earned income limitations also apply.

 Caregiver tax considerations

As mentioned, Gen X is often called the “sandwich generation.” Now in their 40s and 50s, many Gen Xers are caught between two generations, raising children while caring for aging parents.

Those over 42 face unique pressures due to rising healthcare costs and longer life expectancies. Whether they offer hands-on assistance or coordinate long-distance care, these responsibilities require more than just time and compassion; they also require planning.

Fortunately, the tax code offers some relief for those supporting elderly parents. Gen X caregivers may be able to:

• Claim a qualifying relative as a dependent, even if they don’t live in the same household, as long as support and income requirements are met

• Deduct medical expenses, including out-of-pocket costs for a parent, once certain thresholds are met

• Take advantage of the child and dependent care credit when paying for adult day care or in-home services for a dependent parent

  • Dependent must live with the taxpayer

• Deduct qualified long-term care insurance premiums, depending on age and income limits

• Include medically necessary home modifications, such as ramps or grab bars, in your deductible medical expenses

Note: An unmarried taxpayer may qualify for head of household (HOH) status if they pay more than half the cost of maintaining a household for a parent they can claim as a dependent, even if the parent does not live with them [§2(b)(1); Proposed Reg. §1.2-2(b)(3)]. The parent must be the taxpayer’s biological or adoptive mother or father and must qualify as a dependent, not considering multiple support agreements. A parent living in a nursing home or similar facility is considered to have that location as their principal residence.

Gen X

Robert

Jennifer’s father, Robert, is 80 and still lives on his own, though he now needs part-time supervision due to Parkinson’s. As a single working mom, Jennifer pays most of his expenses, including long-term care insurance, and is planning safety upgrades to his home.

Her niece, Sarah, and Sarah’s husband also help by stocking his fridge, providing transportation and covering some utility costs. Together, they support Robert while helping him maintain his independence.

Over a Sunday dinner, they all sit down and estimate the breakdown of the financial contributions made toward Robert’s care in 2025.

Person	2025 estimated AGI	Cash paid toward Robert’s support	% of total support
Jennifer (daughter)	$95,000	$18,000	60%
Sarah & spouse (granddaughter + her husband)	$220,000	$6,000	20%
Robert (father/ grandfather)	N/A	$6,000 (from Social Security)	20%
Total support		$30,000	100%

Robert’s only taxable income is $900 in bank interest; his remaining funds come from non-taxable Social Security benefits.

When Jennifer, Sarah and Robert sit down to meet with Jennifer’s tax advisor, several tax opportunities emerge:

• Dependency exemption for qualifying relative: Jennifer provides more than half of Robert’s total support, and his taxable income is well below the threshold ($5,200 for 2025, indexed). She may be able to claim him as a dependent under the qualifying relative rules.

• Medical expense deduction: Jennifer is paying for medically necessary home modifications (e.g., stair lift, zero-threshold shower), health care costs and insurance premiums. As long as her total unreimbursed medical expenses exceed 7.5% of her AGI, she may be able to deduct them, even if they are on Robert’s behalf.

• Long-term care insurance premiums: Jennifer’s payments for Robert’s qualified long-term care policy may be deductible, subject to IRS limits based on Robert’s age.

• Child and dependent care credit: If Jennifer incurs costs for Robert’s supervised adult day care while she works, these expenses may qualify for the child and dependent care credit, as Robert cannot care for himself and meets dependency criteria.

Qualifying relative dependency exemption

Although the dependency exemption is suspended for 2018-2025, dependency tests still determine eligibility for other tax benefits, such as HOH status and the child and dependent care credit.

A qualifying relative must: 1) meet the relationship test, 2) have gross income below the threshold, 3) receive more than half of their support from the taxpayer, and 4) not be a qualifying child [§152(d)]. They must also be a U.S. citizen, national, or resident of Canada or Mexico [§152(b)(3)], and cannot file a joint return unless only to claim a refund. A taxpayer who can be claimed as a dependent by someone else cannot claim a dependent [§152(b)(1)].

To be a qualifying relative, a person must meet the following tests:

• Relationship/household member

• The individual must either:

– Live with the taxpayer all year as a member of the household, or

– Be related to the taxpayer in one of the following ways (in which case, they do not have to live with the taxpayer all year):

◦ Child, stepchild, foster child, or a descendant of any of them (e.g., grandchild)

◦ Legally adopted child (treated the same as a biological child)

◦ Brother, sister, half brother, half sister, stepbrother, or stepsister

◦ Father, mother, grandparent, or other direct ancestor (not including foster parents)

◦ Stepfather or stepmother

◦ Son or daughter of the taxpayer’s sibling (niece or nephew)

◦ Son or daughter of the taxpayer’s half sibling

◦ Brother or sister of the taxpayer’s parent (aunt or uncle)

◦ Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

• Relationships established by marriage are not ended by death or divorce.

• Gross income

• The individual’s gross income must be less than $5,200 for the year 2025.

• Gross income includes all income received in the form of money, property and services that is not exempt from tax.

Support

• The taxpayer must generally provide more than half of the individual’s total support for the calendar year.

• If no one person provides more than half the support, the multiple support agreement rules may apply.

• An individual’s own funds are not counted as support unless they are actually spent on support.

Not a qualifying child

The individual cannot be claimed as a qualifying relative if they meet the requirements to be a qualifying child of the taxpayer or any other person.

Note: For 2025, Social Security benefits are excluded from a qualifying relative’s gross income unless a portion is taxable under §86(a); only the taxable amount counts. However, the full amount of nontaxable benefits is included when calculating total support received by the individual [Reg. §1.152-1(a)(2)(ii)].

Multiple support agreement

Generally, a taxpayer must pay over half of a person’s support to claim a person as a qualifying relative. However, even if they didn’t meet this support test, they may be able to claim that person as a dependent if all of the following apply (assuming all the other requirements are met) [§152(d)(3)]:

1. No one person contributed over half of that support.

2. More than half of the individual’s support came from two or more people, and each of those people would have been able to claim the individual as a dependent for that tax year, except that none of them, by themselves, provided over half of the total support.

3. The taxpayer paid over 10% of the support.

4. Every other contributor (see bullet 2) who paid more than 10 percent of the individual’s support must sign a written statement agreeing not to claim that person as a dependent for any tax year beginning in the same calendar year.

   • To satisfy this requirement, Form 2120, Multiple Support Declaration, will need to be attached to the return of the person claiming the individual as a dependent. This agreement is valid for one tax year, so a different person can claim the relative in future years.

Although personal exemptions are suspended through 2025, Form 2120 still matters for claiming the $500 ODC, and itemized deductions, head of household Schedule A, and including a dependent’s medical expenses on taxes.

Now, let’s look at the Johnson family. Can Jennifer claim Robert as a qualifying relative in 2025?

Yes, as she meets all four of the tests.

Test	Passed/failed
Relationship	Passed. Robert is Jennifer’s biological father, which satisfies the relationship test. He does not need to live with her
Gross income	Passed. Robert’s only source of taxable income is $900 in bank interest. His Social Security is nontaxable in this income and does not trigger the gross income requirement. His gross income is $900, well below the $5,200 limit.
Support	Passed. Jennifer provides $18,000 of the $30,000 total support for Robert (or 60%). To pass, 50% is generally required.
Not a qualifying child	Passed. Robert isn’t Jennifer’s qualifying child. He’s her father.

Jennifer can claim Robert as a qualifying relative in 2025. While the personal exemption remains suspended, this allows her to deduct medical expenses she pays for him and claim the child and dependent care credit for adult day care.

Note: She may also claim the nonrefundable other dependent credit (ODC) of up to $500.

Itemizing taxpayers can deduct unreimbursed medical and dental expenses for themselves, their spouse, and dependents.

Medical expense deduction

Taxpayers who itemize can deduct unreimbursed medical and dental expenses for themselves, their spouses, and dependents. Only the portion that exceeds 7.5% of AGI is deductible under §213.

If a taxpayer claims a parent as a qualifying relative, they may deduct medical expenses paid for that parent, including doctor bills, prescriptions, and necessary home modifications. For more details, see Publication 502.

Next, we’ll explore a Johnson Family scenario involving a multiple support agreement and how it affects the medical expense deduction.

Johnson family multiple support agreement

Person	2025 estimated AGI	Cash paid toward Robert’s support	% of total support
Jennifer (daughter)	$95,000	$12,000	40%
Sarah & spouse (granddaughter + her husband)	$220,000	$9,000	30%
Robert (father/ grandfather)	N/A	$9,000 (from nontaxable Social Security)	30%
Total support		$30,000	100%

In this case, no one provides more than half of Robert’s support, so the family must use the multiple support rules. Jennifer provides 40%, and Sarah and her spouse provide 30%, so either can claim Robert as a dependent under §30%, so either can claim Robert as a dependent under §152(c), as long as the other signs Form 2120.

Robert still meets the dependency tests; only the support test changes. He does not sign Form 2120, as dependents cannot claim themselves.

Form 2120 defines an eligible person as someone who could claim the dependent but didn’t provide over half of their support. To allow Jennifer to claim Robert, Sarah and her spouse must sign Form 2120 waiving their right, and Jennifer must attach it to her return.

Dependency – multiple support agreement

Can Jennifer claim Robert as a qualifying relative in 2025?

Yes, as she meets all four of the tests.

Test	Passed/failed
Relationship	Passed. Robert is Jennifer’s biological father, which satisfies the relationship test. He does not need to live with her
Gross income	Passed. Robert’s only source of taxable income is $900 in bank interest. His Social Security is nontaxable (his income is low and does not trigger taxation on this benefit). His gross income is $900, well below the $5,200 limit.
Support	Passed. Jennifer does not meet this test individually, however, following the §152(d)(3) multiple-support rules, she passes the test.
Not a qualifying child	Passed. Robert isn’t Jennifer’s qualifying child. He’s her father.

Medical expense multiple support agreement

2025 medical bills for Robert	Who paid	Who reimbursed	Amount Jennifer may deduct on Schedule A
$8,000 outpatient and prescription costs	Jennifer paid with personal funds	Sarah reimbursed $3,000	$5,000 (the unreimbursed share ($8,000 – $3,000))  Only deductible if Jennifer itemizes, and to the extent total medical expenses exceed 7.5% of her AGI

Sarah can’t deduct any of Robert’s medical expenses because only Jennifer can claim Robert as a dependent.

If Sarah did not reimburse Jennifer, and Jennifer paid all of Robert’s medical expenses, Jennifer can include the $8,000 with her family’s medical expenses.

Long-term care premiums and care

Medical expenses include amounts paid for qualified long-term care services and certain premiums paid for qualified long-term care insurance contracts.

Qualified long-term care (LTC) services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that a chronically ill individual requires, and provided pursuant to a plan of care prescribed by a licensed health care practitioner [§213(d)(1); §7702B(c)(1)].

Qualified LTC insurance is insurance that [§7702B(b)]:

• Covers only qualified LTC services

• Does not pay costs that Medicare covers

• Is guaranteed renewable

• Does not have a cash surrender value

• Provides for any refunds of premiums or dividends to be applied to future premiums or an increase in benefits

• Meets consumer protection provisions

For 2025, LTC insurance premiums are deductible up to the following limits:

Age at close of tax year	Amount per year
40 or younger	$480
Over 40 to 50	$900
Over 50 to 60	$1,800
Over 60 to 70	$4,810
Over 70	$6,020

Johnson family

Jennifer, age 50, pays $8,000 in long-term care (LTC) insurance premiums for her 80-year-old father, Robert. Since Robert qualifies as her dependent, Jennifer can deduct medical expenses she pays on his behalf.

For tax year 2025, the maximum LTC premium she can deduct for someone 80 or older is $6,020. Therefore, although she paid $8,000 for his premiums, her deduction is limited to $6,020.

If Jennifer also paid LTC insurance premiums for herself, the maximum amount she could include for her own deduction (based on her age group) is $900 for 2025.

Home improvements

Capital improvements to a personal residence generally must be capitalized and are not tax deductible. However, a capital expenditure incurred primarily for medical purposes can qualify as a medical expense under §213.

On the next page is a chart summarizing the capital expenditures qualifying as medical expenses under §213.

Medical deductions have been allowed for structural modifications to the homes of individuals with disabilities. These modifications include the following (not all inclusive):

• Entrance and exit ramps

• Widening of entrance or exit doorways

• Widening or modifying hallways and interior doorways for wheelchair access

• Installation of railings, support bars, and other bathroom modifications

• Lowering or modifying kitchen cabinets and appliances

• Adjusting electrical outlets and fixtures

• Installing porch lifts or other types of mechanical lifts

• Modifying fire alarms, smoke detectors, or other warning systems

• Modifying stairs to improve accessibility

• Adding safety rails or grab bars

• Modifying door hardware and the areas in front of exits and entrances

• Grading or regrading ground surfaces to improve access

Type of expense	Example	Deductible medical expense
Capital improvement (medically related property improvement)	Elevator installed for a heart condition (e.g., converting a closet into an elevator shaft)	Cost minus the increase in the property’s fair market value (FMV), if any, due to the improvement
Individual item of property	Van designed for the taxpayer in a wheelchair	Excess cost of the special item over the cost of the standard model
Operation and maintenance of medical equipment	Electricity to power a medically necessary porch lift, including repairs, cleaning, etc., of the lift	Fully deductible as a medical expense
Capital expenditures related to the sick person aren’t related to a permanent improvement or betterment of property	A detachable air conditioner and purchased only for the use of the sick person	Full cost is deductible since it’s not a permanent improvement

Note: Expenses paid to modify a rented home or apartment solely for medical reasons are fully deductible if the landlord does not pay them and did not reduce the rent.

Johnson family

Jennifer pays for the following medically necessary home improvements for her dad, Robert, who is her qualifying dependent.

Item Jennifer paid for Robert in 2025	Out-of-pocket costs	Value increase to his home	Net home expense
Stair-lift installation	$6,000	$0	$6,000
Zero-threshold shower conversion	$9,500	$2,000	$7,500
Total	$15,500	$2,000	$13,500

Jennifer can include the net medical expense as qualified medical expenses when filing her individual tax return (only if she itemizes her deductions, and the qualified medical expenses exceed 7.5% of her AGI).

Child and dependent care credit (for adult dependents)

If a dependent lives with the taxpayer for more than half the year and cannot care for themself due to a physical or mental condition, the taxpayer may claim the child and dependent care credit for qualifying expenses paid to work or look for work [§21].

Eligible expenses include in-home aides, adult day care or nursing home services. The credit is 20-35% of up to $3,000 for one dependent, or $6,000 for two or more.

Johnson family

Jennifer’s 80-year-old father, Robert, lives independently but needs part-time supervision due to Parkinson’s-related balance issues.

Although his condition may meet the definition of “unable to care for oneself,” Jennifer cannot claim the child and dependent care credit because Robert does not live with her.

Planning for now and what’s next

Generation X stands at a pivotal crossroads, balancing the dual demands of caregiving and retirement. As the “sandwich generation,” many are supporting both children and aging parents, making thoughtful tax planning more important, and more complex, than ever. By maximizing catch-up contributions, utilizing caregiver-related tax benefits, and making strategic IRA and retirement plan decisions, Gen Xers can take meaningful steps toward a more secure financial future. With the right guidance, they can successfully manage today’s responsibilities while planning confidently for tomorrow.

Generation X stands at a pivotal crossroads