Most people claim their minor children as dependents. The rules for claiming minor dependents is fairly straight forward. Where the dependent deduction rules become much more complicated is where you try to claim other people as dependents. For example, claiming an elderly parent, a niece of nephew that lives with you, an adult child, etc.
There are two categories of dependents that are deductible:
- Qualifying Child
- Qualifying Relative
Qualifying Child
A qualifying child is a person who:
- is the taxpayer’s child or sibling, or a descendent of the taxpayer’s child or sibling (which includes grandchildren and nieces and nephews)
- is 18 years old or younger (or 23 or younger if the child is a full time student)
- lives with the taxpayer for more than half the year
- a child who is away at school is deemed to live with the taxpayer
- does not provide more than half of his own support
If the person you’re trying to claim as a dependent does not meet the requirements of a qualifying child, it’s possible you may claim the person as your dependent under the qualifying relative rule.
Qualifying Relative
A qualifying relative is a person:
- who either
- is the taxpayer’s
- child or descendent (i.e., grandchild, great-grandchild, etc.)
- parent or ancestor (i.e., grandparent, great-grandparent, etc.)
- sibling, aunt, uncle, niece, nephew, cousin, or in-law
- lives with the taxpayer for the full year
- need not be a relative
- is the taxpayer’s
- whose gross income for the year is less than the personal exemption for the year ($3,650 for 2010)
- who receives more than half of his/her support from the taxpayer
- who is not a qualifying child of the taxpayer
The qualifying relative requirement is the traditional test for claiming dependents and may be familiar to you. The qualifying child requirement was created a few years back to set a common definition of a qualifying child for claiming a dependency deduction, a child tax credit, a child care credit, and the earned income tax credit. Before the adoption of the qualifying child requirement, each credit/deduction had its own definition of a qualifying child.
Let’s run through some examples…
Example: John and Joan have three children. They provide more than half of the support for each child. Emily is 15 years old and has a part time job that pays $4,000 per year. Tina is 20 years old and is a full time student who lives on campus. Jimmy is 22 years old, is not a student, earns $10,000 per year, and lives in an apartment with a buddy.
They may claim a dependent exemption for Emily because she is a qualifying child. She is the taxpayers’ child, she is 18 years old or younger, she lives with them for more than half the year, and she has not provided more than half of her support. Note that Emily makes $4,000 which is more than the exemption amount of $3,650 for 2010. This does not prevent her from being a qualifying child because there is no gross income test for a qualifying child—the main thing is that she does not provide more than half of her own support.
Tina is a qualifying child—she is the taxpayers’ child. Although she is over age 18, she is a full time college student under age 23. Tina is deemed to live with her parents because she is away at school. Tina does not provide more than half of her support.
Jimmy is not a qualifying child because he does not live with his parents for more than half of the year. Jimmy is also not a qualifying child because he is over age 18 and is not a full time college student. Even though his parents provide more than half his support, his living situation prevents his parents from claiming him as a dependent.
While Jimmy does not meet the requirement of a qualifying child, he should be tested under the requirements for a qualifying relative. Jimmy is not a qualifying relative because his gross income for the year ($10,000) is more than the personal exemption amount for the year ($3,650)
Example: Lisa has an elderly mother who lives in a nursing home. Mother’s only income is Social Security. Lisa is paying the cost of the nursing home, which means Lisa pays for more than half of her mother’s support.
Mother does not qualify as a qualifying child because Mother is not LIsa’s child or sibling, is over age 18, and does not live with Lisa for more than half the year.
Mother does qualify as a qualifying relative because Mother:
- is Lisa’s parent
- Mother does not have to live with Lisa because Mother is Lisa’s parent
- has gross income under the personal exemption amount
- only the taxable portion of Social Security is counted as gross income under this test
- receives more than half of her support from Lisa
- while nontaxable Social Security does not count as income under the gross income test, Mother’s support provided by Social Security does count toward the support Mother provides for herself
- the amount Lisa pays for the nursing home provides more than half of Mother’s support
- is not a qualifying child of Lisa
Lisa may claim Mother as a dependent.
Example: John’s best friend, Henry, was severely injured in a skiing accident. Henry is out of work. John let Henry move in with him on January 1. John provides more than half of Henry’s support. There is no familial relationship between John and Henry.
Henry is John’s qualifying relative because Henry:
- lives with John for the full year
- remember—there either has to be a familial relationship or the dependent has to live with the taxpayer for the year
- has no gross income and therefore has gross income under the personal exemption amount
- receives more than half of his support from John
- is not a qualifying child of John
John may claim Henry as a dependent.
There you have it. A fairly in depth review of dependency deductions for children and other people. If you have any questions on how these rules apply to you, feel free to comment below or email me your question.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230.