By Janet Berry-Johnson
Whom you can claim as a dependent is a common question during tax season. When taxpayers think of dependents, children often spring to mind — but they're far from the only people who can qualify as dependents.
Here's what this article will cover:
You can claim a personal exemption for yourself, a spouse if you file a joint return and any person who qualifies as a dependent. The dependency exemption reduces your taxable income.
For 2016, each dependent is worth $4,050, as long as your adjusted gross income doesn't exceed the phaseout amounts.
In 2016, exemptions for single taxpayers start to phase out when their adjusted gross income (AGI) reaches $259,400 and is phased out completely at $381,900. Exemptions for married couples filing jointly begin to phase out when their AGIs reach $311,300 and are phased out completely at $372,550.
If you’re the head of household, your exemptions begin to phase out when your AGI is $285,350 and phase out completely at $407,850.
These thresholds are generally adjusted annually for inflation.
A dependent needs to be either a "qualifying child" or a "qualifying relative."
Gail Rosen, CPA, says the IRS defines a "qualifying child" as someone who:
- Lives in your home for over half the year; and
- is your child, stepchild, adopted or foster child; your brother, sister, half sibling or stepsibling; or a descendant of any of these; and
- is under 19 years old at the end of the year (exceptions are if he or she is a full-time student under 24 or any age if he or she is permanently and totally disabled); and
- doesn't provide more than half of his or her own support for the year.
Rosen also says a qualifying child must be younger than the taxpayer or their spouse (if filing jointly), must be a U.S. citizen or resident of the U.S., Canada or Mexico, and must not file a joint return with anyone else that year.
"However, if the only reason a joint return is filed is to get a refund and no return is otherwise required, this test is satisfied," she says.
To qualify as a dependent, Rosen says the IRS defines "student" as a "full-time student for at least five months of the year. So a college senior graduating in May or June can qualify in the year of graduation."
If the person you want to claim as a dependent does not meet all of the requirements of a "qualifying child," they may still be a "qualifying relative."
Luis F. Rosa, Certified Financial Planner™ and an IRS enrolled agent, says the qualifying relative must meet four tests:
- He or she isn't a qualifying child; and
- he or she meets the "member of household or relationship" test (discussed below); and
- he or she meets the "gross income" test (the person's income must be less than the exemption amount for the year, which is $4,050 for both 2016 and 2017); and
- he or she meets the support test (you generally must provide more than half of their support during the calendar year, and Social Security income may not be included in this definition of gross income).
Member of household or relationship test
Rosa says to pass the member of household or relationship test, the person must either have lived with you all year as a member of your household or be related to you as follows:
- Your child, stepchild, foster child or a descendant of any of them (for example, your grandchild).
- A sibling, half-brother or half-sister, stepbrother or stepsister, or any of their descendents.
- Your father, mother, grandparent or another direct ancestor, but not a foster parent.
- A stepparent.
- An aunt or uncle.
- Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
Rosa also notes, "if any of these relationships were established by marriage, they aren't ended by death or divorce."
In short, despite the name, a qualifying relative doesn't have to actually be related to you by blood or marriage to qualify, as long as he or she lived with you all year.
The support test can be a bit difficult to navigate if the dependent has income and provides some of his own support. Rosen says "support is measured by amounts spent for the individual's support and by the value of support items provided." Take the following example:
Total cash support of a person living in your home: $6,000
Cash support provided by you: $2,500
Rental value of housing provided by you: $2,000
Rosen says, "Under these facts, the total support for the individual is $8,000 (the $6,000 cash plus the value of the housing provided). Because you provided more than half ($2,500 in cash plus $2,000 in housing = $4,500), you meet the support test."
Rosen goes on to say that support includes "basic needs such as food, clothing, shelter, insurance, education, etc., but it may not be limited to 'necessities' in a narrow sense of the term."
Rosen says scholarships received by a full-time student and applied toward his or her education are not included in support if the individual is your child.
"So, for example, if you cover $4,000 out of $6,000 of a child's support costs and he received a $10,000 college tuition scholarship, you can still pass the support test," she says. "Total support isn't increased to $16,000 by the scholarship."
To meet the qualifying child test, the child must be either younger than 19 years old or be a student younger than 24 years old at the end of the calendar year.
Rosa notes that "if the child is permanently and totally disabled, he or she can be claimed at any age."
Once your children age out of the qualifying child classification, they can still be claimed as dependents under the qualifying relative rules, as long as they meet the other tests.
To help taxpayers figure out whom they can claim as dependents, the IRS website includes an interactive interview tool. When using the tool, you'll need to provide information about the dependent's marital status, your relationship to the dependent, support provided, adjusted gross income and the terms of any multiple support agreements, which apply when divorced or separated parents both contribute to the support of a dependent child.
The interview takes about 15 minutes, but it could be well worth your time if you have questions about whether your dependent qualifies for an exemption.
About the Author: Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Freshbooks, The Penny Hoarder, Discover Student Loans, Chase News & Stories, Capitalist Review, Guyvorce and Intuit's Firm of the Future blog. Janet lives in Arizona with her husband and son and their rescue dog, Dexter.
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