#qualifying relative

A dependent will help a US taxpayer avail many benefits such as dependency exemption and credits like Child and Dependent Care Credit, Child Tax Credit, Earned Income Credit which help to reduce taxable income and in turn the tax owed(if any) to the Internal Revenue Service (IRS). Also, any medical expenses paid by the taxpayer for such dependents can be used as an itemized deduction item subject to AGI limits on IRS form Schedule A.

Dependents are classified as - Qualifying Child and Qualifying Relative.

FAQ:

Q1. Can a US taxpayer claim his/her spouse as a dependent when the spouse does not have any earned income?

A taxpayer’s spouse is never a taxpayer's dependent even if (s)he has no earned income.

Q2. Can a US taxpayer claim his/her parent(s) or in-laws as a dependent?

Taxpayer’s parent(s) and in-laws will qualify as a dependent if they meet the Qualifying Relative tests mentioned below, or use the attached flow-chart.

Criteria:

A ‘Qualifying Child’ does not need to meet the 'Gross Income Test.’

A ‘Qualifying Relative’ needs to meet all the tests mentioned below except AGE TEST.

The TESTs are:

1) Citizenship Test

2) Relationship or Member of Household Test

3) Joint Return Test

4) Age Test

5) Support Test

6) Gross Income Test

1) Citizenship:Dependent must be US citizen or resident, or a resident of Canada or Mexico.

Exception: Certain adopted children.

2) Relationship or Member of Household Test : Under this test a dependent person must either be:

i)  related to taxpayer, or

ii) a member of household for the entire year.

Some relatives such as child(ren), parents*, in-laws and others are related to a taxpayer and hence do not need to be a member of household to qualify as a dependent.

Example 1: If a child is not a member of the household due to special circumstances like illness, vacation, school or others, (s)he will still be regarded as member of household for entire year and will satisfy the relationship test.

Example 2: If a taxpayer’s parent is in a convalescent home or in a hospital and not living with the taxpayer, if other tests are met the taxpayer can still claim the person as a dependent.

Others ‘who are not related’ need to live in the taxpayer’s home for the entire year to qualify as a dependent. e.g. taxpayer’s cousins.

3) Joint Return:The person who is being claimed as a dependent should not be filing a joint return with his/her spouse unless the return is being filed only to claim refund for the taxes withheld from his/her paycheck.

4) Age Test: The child should be :

i) Under the age of 19 at the end of tax year and younger than you,

ii) Under the age of 24 at the end of tax year if (s)he is a full-time student and younger than you, or

iii) Permanently and totally disabled regardless of age.

NOTE: A dependent’s age is a factor only for the Qualifying Child test. Age is not a factor for Qualifying Relative. A Qualifying Relative can be of any age.

5) Gross Income Test: For the person to qualify as a dependent (s)he cannot have gross income  equal to or more than the personal exemption amount ($3,900 for 2013).This test does NOT apply to taxpayer’s child(ren) who are under the age of 19 or are full-time students under age 24 or are permanently disabled.

6) Support Test: To meet this test the taxpayer must provide for more than half of the total support for the dependent person.

Flowchart to determine " Who May Qualify as a US Taxpayer's Dependent"

The original flowchart can be downloaded at the following URL:

http://www.scribd.com/doc/156579284/Who-May-Qualify-as-a-US-Taxpayer-s-Dependent

  For further details visit:

IRS Publication 501: Exemptions, Standard Deductions and Filing Information

Publication 17 (2012), Your Federal Income Tax

About The Author

Arushi Bhandari, CPA, MBA recently published an eBook "STARTUP Financing, Equity and Tax" with insights about the impact of JOBS Act & Dodd Frank Act on startup funding, terms like angel, accredited investors, venture capitalists, stock options, Restricted Stock, RSUs. It gives in depth examples & templates explaining documents like Term Sheet, Cap Table, Convertible Securities plus the importance of 83(b) filing.

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