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.