Last week, I started answering income tax-related questions that frequently pop up this time of year. While it’s the “stuff” that FAQs are made of, there are enough twists and changes from year to year to preclude anything but the most general and open-ended FAQ file.
This week, I’ll speak to something near and dear to most of us – our family members and others whom we may wish to claim as dependents on our income tax return. This topic, dear readers, is not easily penned: the Internal Revenue Service (IRS) makes determining and claiming dependents a difficult task.
WHO’S MY DEPENDENT?
The Internal Revenue Code (IRC), in § 152, defines a dependent as being a person who is either a qualifying child or a qualifying relative. Seven tests of depenency are employed to determine if a person can be claimed as a dependent.
2010 Dependency Tests (courtesy of The TaxBook™–2010 Tax Year)
For both qualifying child and qualifying relative:
- Taxpayer ineligible if a dependent test. To claim another person as a dependent, the taxpayer, or spouse of taxpayer if filing jointly, cannot be claimed as a dependent on someone else’s tax return.
- Married filing jointly test. A person cannot be treated as a dependent if he or she files a joint return with a spouse. This rule does not apply if the joint return was filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.
- Citizen or resident test. The person claimed as a dependent must either be a U.S. citizen, U.S. national, or a resident of the U.S., Canada, or Mexico. An adopted child that lived with the taxpayer all year passes this test if the taxpayer is a U.S. citizen or U.S. national.
Additional tests for qualifying child:
- Relationship test. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these such as the taxpayer’s grandchild, niece, or nephew.
- Member of household test. The child must have lived with the taxpayer for more than half of 2010. (There are exceptions.)
- Age test. The child must be: a) under the age of 19 at the end of 2010 and younger than the taxpayer (or spouse if filing MFJ); or b) under the age of 24 at the end of 2010, a full-time student for any part of five calendar months during 2010, and younger than the taxpayer (or spouse if filing MFJ); or c) any age and permanently and totally disabled.
- Support test. The child cannot have provided over half of his or her own support during 2010.
Additional tests for qualifying relative:
- Relationship test. A relative of the taxpayer must be: a) a son, daughter, stepchild, foster child, or a descendant of any of these (such as a grandchild); or b) a brother, sister, or a son or daughter of either of these (such as a niece or nephew); or c) a father, mother, or ancestor or sibling of either of them (such as a grandmother, grandfather, aunt, or uncle); or d) a stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; or e) any other person (other than the taxpayer’s spouse) who lived with the taxpayer all year as a member of the taxpayer’s household if the relationship does not violate local laws.
- Not a qualifying child test. The relative must not be a qualifying child of any taxpayer for 2010. For this purpose, a person is not a taxpayer if he or she is not required to file a tax return and either does not file a return or only files a return to get a refund of withheld income taxes.
- Gross income test. The relative must have gross income of less than $3,650 in 2010.
- Support test. The taxpayer must have provided over half of the relative’s support in 2010. This test does not apply for persons who qualify as dependents under the children of divorced or separated parents rule, the multiple support agreements rule, and the rule for kidnapped children.
THE BIG QUESTION!
The Citizen or resident test often prompts the BIG question:
I’m a US citizen (or resident) living in the USA but my spouse and children are Philippine nationals living in the Philippines. Does this mean I cannot claim them as dependents?
Generally speaking, the Citizen or resident test would require the a dependent either to be a U.S. citizen or to be a legal resident of the USA, Canada or Mexico. So, at first blush, one would think the answer to the BIG question is, “No.”
As with all things “tax,” there really isn’t one simple answer to any question–the BIG question, included. There is a tax strategy that can be employed to undo the bonds of this test. That will be the topic of my next article.
Hi Paul,
Are you still preparing tax returns? I am in need of a tax accountant as my old firm used to do mine (PwC) but now am in RP so will need to find a new preparer. All my income was generated abroad. My tax returns (Fed +NR for HI) average 90 pages…
PM if you are still doing returns.
Thanks,
Don
Hi Don – Sounds like PWC had their hands full in the past! 😉
Yes, I still prepare returns – I’ll send you a short note via my business email. You can also visit my website at http://www.k-c-limited.com for a little info.
Thanks for thinking of me!
Oops – should have worded my note a little better – I first need you to contact me via the “CONTACT US” tab at the top of this page. Then I can send you a note.
Hi Paul – The e-mail address for Don was included in the comment notification you got via e-mail, right?
Oh yes. Things a little hectic this morning, so my hip-shooting is hitting my foot!
Thanks for the reminder, Bob.
Paul: Thanks for the reminder, and update on ” dependents”. As usual the “IRS” in its pig headed, predjudiced reasoning continues to exclude dependents of U.S. taxpayers who meet all the requirements, except place of residence, for their dependent or dependents who through fate, or circumstance were not fortunate enough to live in Mexico, or Canada. Shame on the IRS, and the elected representatives of the United States for not correcting this gross inequity. Tax payers who are burdened by this exclusion, need to contact their representatives for remedial assistance, and put the question to them, ” are dependents who reside in Mexico or Canada, more needfull, more entitled, than those who reside elsewhere”?
Hi Roberto – Well, as all will see in next week’s article, there can be away to accomplish what, at first, seems impossible. The “strategy” involves being in a valid marriage and obtaining Income Tax Identification Numbers (ITINs). I won’t give away “the secret” until then.
Funny thing: the Internal Revenue Code is such a mish-mash of piecemeal tax law because of those “elected representatives” passing tax law requested by their constituents. An example is the larger standard deduction that can be claimed just for being 65 years old or older. Senior citizen constituents had that placed into law by their representatives. Is a 65-year old more indigent than, say, a 64- or 63-year old?
😉
(Wait ’til next week!)
Roberto and Paul, I’ll be looking forward to that one too. I agree with Roberto, I think the discrimination against people who have non-US citizen family members is a particularly outrageous feature of a deeply screwed up tax system (no disrespect to your profession intended, Paul, you didn’t invent it, but at this point I see no meaningful difference between the US tax system and plain unvarnished extortion.) Anyway it’s nice of you for taking your time and sharing some of your secrets.
Jack
Hi Jack – Yes, “’tain’t my system” but it pays the bills! 😆
Whenever I’m bogged down with tax problems, I just tell myself that if the tax code was simple enough and easy enough to understand, I’d be out of a job!
😉
No “dis” taken, Jack. Personally, I believe the same thing – a very punitive tax code that all but begs one to cheat and steal!
Paul,
I have one question that I hope you can answer, well I know you can answer. If filing the W7 with your return can you file on line. That is one only thing that is keeping me from filing my return
Bill
Hi Bill – Sorry to say, one cannot “e-File” a return with Form(s) W-7 attached. All such returns must be filed in paper format.
The return would have the Form(s) W-7 and certified copies of supporting information attached to the front of the Form 1040, and would be mailed to a specific address (zip code) in Austin, TX. There, the Form(s) W-7 would be processed first, ITINs assigned (hopefully), then the return is processed.
I’d hope that it wouldn’t be the only thing holding you back, Bill. E-Filing is nice, but if it takes paper to achieve lower taxable income and lower taxes, then the expense to FedEx is worth it!
😉
Thanks for the reply Paul. Yes the expense is worth it, about $1500 more worth, so yes I will be FedExing the return. Now I did find an Acceptance Agent for the W-7 forms here in the Philippines in Angeles City. I found him off the IRS website, I still need to give him a call. The reason I think for using him is of proof of the person and not having to send in your ID’s and all. After I find out I will let you know.
Hi Bill – Yes, you want to call (045) 888 2748 and talk to Leony between 1200-1500 daily Mon-Sat with your questions. She works for Jim Boyd and handles inquiries.
They will certify your documents as being real, etc., as you suspect. (Have dealt with them on behalf of other clients.) You’ll basically take your “stuff” and your tax return to them, and they will do their “acceptance thing” on the W-7, put the package together and mail it off to Austin, TX.
Best of luck – it’s worth the expense. 😉
This question is for a Filipino friend of mine who is now married to an American.
My friend and her daughter are not yet citizens of the US. Can they be declared as dependents?
thanks in advance 🙂
Patty
Hi Patty –
Unfortunately, your friend and her daughter would not be eligible as dependents only because your friend is married to an American. Both would need either a US Social Security Number. If not eligible for an SSN, an Individual Taxpayer Identification Number (an ITIN) would be required.
I presume that both mother and daughter live in the Philippines. If so, they are not eligible for the SSN. That leaves the ITIN. I do not believe the daughter would be eligible for the ITIN (because of living in the Philippines) but the wife/mother is eligible.
Have the American husband find out about filing Form W-7 for the wife and claiming her as his spouse on his income tax return. Please note that there is considerable work involved in filing that form (it requires the accompanying tax return to be filed in paper form via the mail, plus additional items of information to be attached).
Information is available at the IRS’s web site:
http://www.irs.gov/individuals/article/0,,id=96287,00.html
Good luck to your friend and her family.
hi Paul, just noticed your tax blog. My situation is similar to many others..married to a Philippine national and she has 13 yr old son. They reside in Phil and im in states. im guessing the ITIN could possibly benefit us. Would there be anything else I would do for tax purposes after ITIN ? would a w-7 help ? and what would fees be ? Thank you, Thomas
Hi Thomas – Yes, your case is very similar to others. Here are some bits of information that may possibly be of help:
– Your wife would be eligible for an ITIN.
– The tax benefit of your wife having an ITIN is your ability to employ the tax filing status of Married Filing Jointly (with its increased standard deduction and ability to claim your wife as a dependent).
– To file Married Filing Jointly, you would have to make an “election” to do so in a statement attached to your tax return. This election would be valid until a different filing status is elected. This means that once you start filing Married Filing Jointly, you must continue to do so until you officially change the election.
– A drawback of Married Filing Jointly is that your wife’s “worldwide income” will be taxed along with yours.
– The 13 year old son would not be eligible for an ITIN.
– You would not, in any case, be able to claim the 13 year old son as a dependent.
– A Form W-7 must be filed – with tax return and required attachments – to apply for an ITIN (see the Form W-7 instructions at http://www.irs.gov/pub/irs-pdf/iw7.pdf for details).
– There are no fees connected to filing Form W-7. There may be fees incurred in obtaining required attachments/documentation for the application packet.
– The process of applying for the ITIN via Form W-7 is a “joint effort” – both you and your wife will be collecting the required attachments/documentation, and both of you will sign the W-7 and attached tax return. The signatures must be “original” – copies or faxes are not allowed.
– Processing time for the W-7 varies from about 3 months to 6 months, depending on the workload of the IRS processors.
Check those W-7 instructions, and check with the IRS on line (http.irs.gov) for additional info.