Dependents

What is a Dependent?

Qualifying child or qualifying relative that a taxpayer can claim on their tax return. EX Qualifying Child: a taxpayer supports their 10-year-old who lives with them all year. EX Qualifying Relative: Taxpayer supports their mother who lives in their own home and taxpayer provides more than half her support.

What are the 5 tests for a Qualifying Child?

1. Relationship test

2. Age test

3. Residency test

4. Support test

5. Joint return test

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Qualifying Child: Relationship Test

Qualifying child must be:
Son, daughter, stepchild, foster child, brother, sister, step sibling, half sibling, grandchild, niece/nephew

Qualifying Child: Age Test

Qualifying child must be:

Under age 19, Under age 24 and full-time student, permanently disabled and younger than the taxpayer

Qualifying Child: Residency Test

Child must live with taxpayer more than half the year. Temporary absences count; school, medical, vacation, military, detention EX: More than 6 months = Residency Test passed

Qualifying Child: Support Test

Qualifying Child cannot provide more than half their own support. IMPORTANT: Taxpayer does not have to provide more than half for a qualifying child.

Qualifying Child: Joint Return Test

Child cannot file a joint return with spouse unless the joint return is only filed to claim a refund of withheld taxes and no tax liability exists. EX 1: Your daughter is married and she and her husband file a joint return and owe taxes or claim credits = you cannot claim her as a dependent EX 2: Your daughter is married but: she made $3000, her husband made $2,000, they had taxes withheld, and they file jointly only to get their refund back. they would have no tax liability = you can still claim her as a dependent.

Qualifying Relative Requirements

1. Not a qualifying child

2. Relationship or lived with taxpayer all year

3. Gross income less than limit ($4700)

4. Taxpayer provides more than half of support

EX: Taxpayer supports their mother who lives in her own home. Mother income $3000 = Qualifying Relative

EX: Taxpayer’s friend lives with them all year, taxpayer pays most expenses = Qualifying Relative

EX: Taxpayer supports their father, but father makes $10,000 = Income too high, NOT a Qualifying Relative

EX: Taxpayer’s 30-year-old son lives at home and taxpayer supports him = Qualifying Relative

Tie Breaker Rules

If two taxpayers claim same child:

1. Parent wins over non-parent

2. If two parents = child lived with longer

3. If equal time = higher AGI wins

4. If no parent = highest AGI wins EX: Child lives with aunt and grandmother, no parents = Person with higher AGI claims child

What counts as support?

Food, housing, clothing, education, medical, transportation, recreation, childcare.

EX: Parent pays rent, groceries, and school supplies = these counts as support

Ex: Child pays for their own car and gas = These counts as support the child provides for themselves.

When calculating support include Fair renal value of home, utilities, food eaten in home, medical insurance, school costs.

DO NOT include life insurance, taxes, savings, scholarships (for students)

Qualifying Child vs Qualifying Relative

Qualifying Child: must live with taxpayer, age rules, child cannot support themselves. Qualifying Relative: any age, income limit, taxpayer must provide >50% support, doesn’t have to live with taxpayer (if related)

Do scholarships count as support provided by the student?

NO - they do not count as support

When is support used?

1. Qualifying Child - to determine if the child provided more than half of their own support.

2. Qualifying Relative - to determine if the taxpayer provided more than half of their own support.

3. Head of Household- to determine if the taxpayer paid more than half the cost of keeping up the home.

4. Not used for Tie Breaker Rules - if two parents claim the same child, use: Parent vs non-parent, time lived with parent, higher AGI.

Does earned money alone count as support?

No, support is based on who paid the expenses. EX: Kid earns $5000 but saves it = not support

How is support calculated?

Support is added by calculation the total cost of Food, housing, clothing, education, medical, transportation, recreation, childcare, etc. Then, determine who paid more than half of the total support. Use: receipts, bank statements, bills, estimates, fair rental value of housing

How is housing calculated for support?

Housing support is calculated using: Rent paid if renting, Fair rental Value if home is owned or mortgaged, Divide Fair Rental Value by number or occupants for support per person.

EX: You own a house Mortgage = $1200 a month but similar houses rent for $1800 a month. FRV = $1800 a month. That is what you use for support calculations.

If 3 people live there: $1800 divided by 3 = $600 per person per month $600 × 12 = $7200 yearly housing support per person.