Chapter 3 - Qualifying Dependents and Support

Question 1

Definition of a Dependent

Answer 1

Must pass tests #1-3:
1. The taxpayer is not a dependent. The taxpayer cannot claim any dependents if they (or the spouse if filing jointly) could be claimed as a dependent by another taxpayer. Exception: if the person who can claim the taxpayer is filing a return only to claim a refund of income tax withheld or estimated tax paid.
2. Joint return. The potential dependent is not filing a joint return. Exception: if the joint return is filed by the potential dependent and their spouse only to claim a refund of income tax withheld or estimated tax paid.
3. Citizenship/resident. The taxpayer cannot claim a person as a dependent unless that person is a US citizen, US resident alien, US national, or resident of Canada or Mexico.

Question 2

Qualifying Child

Answer 2

Must pass tests #4-9 and if fail move to qualifying relative:
4. Relationship – The potential dependent must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.
5. Age – The potential dependent must be:
Under age 19 at the end of the year and younger than the taxpayer (or taxpayer’s spouse, if filing jointly).
Under age 24 at the end of the year, a full-time student, and younger than the taxpayer (or taxpayer’s spouse, if filing jointly).
Any age if permanently and totally disabled. (This means the “child” could be an adult.)
6. Residency – The potential dependent must have lived with the taxpayer more than half the year.
7. Support – The potential dependent must not have provided more than half of their own support for the year
8. Joint Return – This is currently the same as Test #2. The potential dependent is not filing a joint return unless only to claim a refund of withholdings or estimated tax payments.
9. Special Case – If the potential dependent meets the rules to be a qualifying child of more than one person, the taxpayer must be the person entitled to claim the potential dependent as a qualifying child per the tie-breaker rules.(There is a choice only if one is a qualifying parent and the other qualifying taxpayer has AGI higher than the parent. If the parent has higher AGI, there is no choice. Additionally, if no parent is involved, the taxpayer must have the highest AGI of all qualifying taxpayers.)

Question 3

Qualifying Relative

Answer 3

Must pass tests #10-13: fail then not a dependent
10. Not a Qualifying Child – The potential dependent cannot be the taxpayer’s qualifying child or the qualifying child of any other taxpayer.
11. Relationship/Member of Household – The potential dependent must meet one of the following:
Be related to the taxpayer or spouse:
As a child, stepchild, foster child, or a descendent of any of them.
Brother/sister, stepbrother/sister, half- brother/sister.
Father, mother, grandparent, or other direct ancestor (such as great-grandparents), but not foster parent.
Stepfather or stepmother.
Son or daughter of a brother/sister or half- brother/sister (example: niece or nephew).
Brother or sister of the taxpayer/spouse’s father or mother (example: aunt or uncle).
Son-in-law, daughter-in-law, father-in-law, mother- in-law, brother-in-law, or sister-in-law.

or

Have lived with the taxpayer legally all year as a member of their household.
12.Gross Income – The potential dependent’s gross income must be less than the annual maximum.4
(There is a sheltered workshop exception.1)
13. Support – The taxpayer must provide more than half of the potential dependent’s total support for the year. (There are exceptions for multiple support agreements, children of divorced, separated, or unmarried parents who lived apart, and kidnapped children.)

Question 4

1 Dependent taxpayer test (definition of a dependent)

Answer 4

Any taxpayer who qualifies as a qualifying child or qualifying relative of another taxpayer may not claim any dependents.
Even if the other person does not claim the taxpayer, the taxpayer still may not claim any dependents.
If the dependent taxpayer has a qualifying child or a qualifying relative of their own, they are not exempt from this requirement and cannot claim the dependent.
Also, if the taxpayer is filing a joint return and their spouse can be claimed as a dependent on someone else’s return, then the taxpayer and spouse cannot claim any dependents on their joint return.

Question 5

Exception to dependent taxpayer test

Answer 5

There is an exception to this test if the person that could claim the taxpayer (or spouse) as a dependent files an income tax return only to claim a refund of income tax withheld or estimated tax paid.

Question 6

Exception to joint return test

Answer 6

Exception: the married dependent may file a joint return merely to claim a refund of income tax withheld or estimated tax paid.

Question 7

2 Joint return test (definition of a dependent)

Answer 7

A taxpayer may not claim a married person as a dependent if the married dependent files a joint return.

Question 8

3 Citizen or resident test (definition of a dependent)

Answer 8

A taxpayer may not claim a person as a dependent unless that person is one of the following:

U.S. citizen
U.S. resident alien
U.S. national
Resident of Canada
Resident of Mexico

Question 9

Exception to citizen or resident test

Answer 9

If the taxpayer is a U.S. citizen or U.S. national and has legally adopted a child who is not a U.S. citizen, U.S. resident, or U.S. national, the citizenship test is met if the child lived with the taxpayer all year. This exception also applies if the child was lawfully placed with the taxpayer for legal adoption and lived with the taxpayer from the time of placement to the end of the year.

Question 10

4 Relationship test (a qualifying child)

Answer 10

In order to satisfy the relationship test, an individual must be related to the taxpayer in one of the following ways:

Son or daughter.
Brother or sister.
Adopted child.
Eligible foster child.
A descendant of any of these (this includes all grandchildren, nieces, and nephews).
Stepsons, stepdaughters, stepbrothers, and stepsisters all satisfy the relationship test. Half brothers, half sisters, and their descendants also meet this requirement.

Adopted children satisfy the test, even if the adoption is not yet final, provided the child has been lawfully placed for adoption with the taxpayer. It is worth noting, once a child is adopted, they are no longer referred to as an adopted child but rather a son or daughter.

A foster child must be placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

Question 11

5 Age test (a qualifying child)

Answer 11

To meet this requirement, the child must meet one of the following tests:

Be under age 19 at the end of the year and younger than the taxpayer (or the taxpayer’s spouse, if filing jointly).
A full-time student under age 24 at the end of the year and younger than the taxpayer (or the taxpayer’s spouse, if filing jointly).
A full-time student is defined as being enrolled full-time, according to the institution’s definition of full-time attendance, and
The full-time student must qualify as a student for any part of five calendar months during the year.
Permanently and totally disabled at any time during the year, regardless of age. The potential qualifying child dependent does not have to be younger than the taxpayer or spouse when permanently and totally disabled.
The child has a physical or mental condition that doesn’t allow them to engage in any substantial gainful activity, and
A doctor has determined the disability has lasted or can be expected to last continuously for at least a year or can lead to death.

Note: For an individual to be a qualifying child of a taxpayer or taxpayer’s spouse (if filing jointly), the individual must be younger than either the taxpayer or the taxpayer’s spouse, but doesn’t have to be younger than both. However, a qualifying child who is permanently and totally disabled does not have to be younger than either the taxpayer or the spouse.

Question 12

6 Residency test (a qualifying child)

Answer 12

The residency test is satisfied if the individual lived with the taxpayer for more than six months of the year. An individual who was born or died during the year is considered to have met this test, regardless of how long they lived with the taxpayer, provided they lived with the taxpayer for half of the time they were alive during the tax year. A stillborn child cannot be claimed as a dependent.

There are exceptions for children who were kidnapped or temporarily absent from the home.

Question 13

Exception to Residency test (a qualifying child)

Answer 13

An adopted child satisfies this test provided the child is adopted in 2023, and has been lawfully placed in the home for adoption. The taxpayer can consider the child to have lived with them for more than half of the year if the taxpayer’s main home was the child’s main home for more than half the time since the child was adopted or placed with them during 2023.

Question 14

7 Support test (a qualifying child)

Answer 14

A potential qualifying child dependent cannot have provided more than one-half of their own support during the tax year.
Note: Payments received for the support of a foster child from a child placement agency are considered support provided by the agency. Similarly, payments received for the support of a foster child from a state or county are considered support provided by the state or county. A potential dependent’s own funds are not support unless they are actually spent for support. Thus, if money is put in savings and not used for support, it does not count.

Question 15

8 Joint return test (a qualifying child)

Answer 15

To meet this test, the child cannot file a joint return for the year, unless they file a joint return only to claim a refund of income tax withheld or estimated taxes paid.

Question 16

Items included in determining dependent’s total support

Answer 16

Food, housing, clothing, grooming and personal care items, transportation, recreational activities, child and dependent care, capital items such as a car, computer, stereo, or TV purchased for dependent’s individual use, most unreimbursed medical and dental expenses including health insurance premiums, most education expenses including tuition, books, supplies, room and board, and meals consumed at school.

Question 17

Loding expense when determining dependent’s total support

Answer 17

When determining whether the taxpayer provided over half of a dependent’s support, you must use the value of the lodging rather than the actual costs. We refer to this as the fair rental value of the dependent’s residence. Fair rental value includes a reasonable allowance for the use of furniture and appliances, and for heat and other utilities that are provided. However, if paying rent, it is a fair assumption that the rent is the fair rental value.
The total expenses for the household are divided by the number of persons living in the home to arrive at the lodging cost per occupant.

Question 18

Items not included in determining dependent’s total support

Answer 18

Capital items purchased for general household use, such as furniture and appliances (however, the availability of these items is taken into account in determining the fair rental value of housing). Example: A television purchased for the family and placed in the living room would not count toward one dependent’s support. It could, though, be taken into account when determining the fair rental value of the house. If, instead, a television was purchased for the dependent to place in their own room and use, it would be counted in the total support for that dependent.
Federal, state, and local income taxes paid from the dependent’s income.
Social security and Medicare taxes paid from the dependent’s wages.
Life insurance premiums
Funeral expenses
Survivor’s and Dependent’s Educational Assistance payments (used for the support of the child who receives them).
Certain scholarships. If the dependent is a full-time student and is the taxpayer’s son, daughter, stepson, stepdaughter, or eligible foster child, do not include in the support computation any expenses paid with scholarships, whether taxable or nontaxable.
Medical and dental expenses paid or reimbursed by a health insurance policy are not included in support, and the insurance proceeds are not included in income.

Question 19

10 Not a qualifying child test (a qualifying relative)

Answer 19

To meet this test, the potential qualifying relative dependent must not be the qualifying child of the taxpayer or of any other taxpayer. In other words, a potential dependent who is a qualifying child of one taxpayer cannot be claimed as a qualifying relative by another taxpayer.

Question 20

11 Relationship or member of the household test (a qualifying relative)

Answer 20

Relationship/Member of Household – The potential dependent must meet one of the following:
Be related to the taxpayer or spouse:
As a child, stepchild, foster child, or a descendent of any of them.
Brother/sister, stepbrother/sister, half- brother/sister.
Father, mother, grandparent, or other direct ancestor (such as great-grandparents), but not foster parent.
Stepfather or stepmother.
Son or daughter of a brother/sister or half- brother/sister (example: niece or nephew).
Brother or sister of the taxpayer/spouse’s father or mother (example: aunt or uncle).
Son-in-law, daughter-in-law, father-in-law, mother- in-law, brother-in-law, or sister-in-law.

or

Have lived with the taxpayer legally all year as a member of their household.

Question 21

12 Gross income test (a qualifying relative)

Answer 21

If the potential dependent has gross income, it must be less than $4,700 for 2023.
When determining an individual’s gross income for the year, do not include tax-exempt income, such as certain social security benefits. Remember, gross income is all income that isn’t exempt from tax.
In certain circumstances, based on the taxpayer’s total income, social security benefits are exempt from tax.

Question 22

13 Support test (a qualifying relative)

Answer 22

In figuring a potential dependent’s total support, include tax-exempt income, savings, and borrowed amounts used to support that person. Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest.
Remember, a potential dependent’s own funds are not counted as support, unless they actually spent those funds on supporting themselves.
As mentioned earlier, the support test for a qualifying relative is different than for a qualifying child. Remember, the support test for a qualifying child is the child must not provide more than half of their own support. The test for a qualifying relative depends on the taxpayer providing over one-half of the support for the potential dependent to satisfy the test.

Question 23

13 Support test (a qualifying relative) calculation

Answer 23

Daniel would like to claim Aiden as his dependent. Aiden (55) is Daniel’s uncle. He is not disabled. Aiden lives about 20 minutes from Daniel. Daniel pays Aiden’s rent and provides his groceries. He pays on average $2,200 a month to support Aiden. Aiden’s gross income is $350 a month. Aiden spends it all on his groceries. He has no savings, investments, or any other income.

Aiden’s total support is $30,600 ($26,400 + $4,200). The $26,400 consists of the $2,200 a month support Daniel paid multiplied by 12 months. In addition, Aiden spent his gross monthly income each month on his own support for an additional $4,200 ($350 x 12).

Since Daniel provided over one-half of Aiden’s support, he would pass the support test. Note: Aiden spent $4,200 ($350 × 12) on his own support, or 13.73% ($4,200 ÷ $30,600), and Daniel spent $26,400 ($2,200 × 12), or 86.27% $26,400 ÷ $30,600).

Question 24

Multiple support agreement

Answer 24

A multiple support agreement may be made when no individual provided more than half of a person’s support, but two or more taxpayers together provided more than half of the person’s support. To qualify to participate in a multiple support agreement, a taxpayer must provide over 10% of total support for the other person. The qualified taxpayers then may decide among themselves which one will claim the dependent, provided they meet all the other requirements to claim the dependent.

Question 25

Nonrefundable credits vs refundable credits

Answer 25

Nonrefundable means that the combined amount of these credits cannot reduce the taxpayer’s tax liability below zero. Refundable credits may reduce the taxpayer’s tax liability below zero, and the difference is refunded to the taxpayer.

Question 26

Requirements to be met to have a qualifying child for the child tax credit

Answer 26

The taxpayer must have a qualifying child per the dependency rules. (The dependent must pass the first eight dependency requirements.)
The taxpayer must claim them as a dependent.
The qualifying child must be under the age of 17 at the end of the year.
The qualifying child must be a U.S. citizen, U.S. national, or U.S. resident alien. Note, this is different than the Dependency Test #3 which states the potential dependent could also be a resident of Canada or Mexico.
The qualifying child must have a social security number (SSN) valid for employment in the U.S. and issued before the due date of the tax return (including extensions). (This does not include an ATIN or ITIN.)
The taxpayer, and spouse if filing a joint return, must have an SSN or individual taxpayer identification number (ITIN) issued to them before the due date of the return, including extensions.

Question 27

Other dependent credit

Answer 27

The Other Dependent Credit (ODC), sometimes referred to as the credit for other dependents, is generally available for a dependent who does not meet the qualifications for the Child Tax Credit. It is a nonrefundable credit. The maximum amount that can be claimed for this credit is $500 for each qualifying dependent.

Question 28

Qualifying person to meet other dependent credit requirements

Answer 28

Must meet all requirements:
The person is claimed as a dependent on the taxpayer’s return. (This can be either a qualifying child or qualifying relative dependent.)
The person cannot be used by the taxpayer to qualify for the Child Tax Credit or the Additional Child Tax Credit.
The person is a U.S. citizen, U.S. national, or U.S. resident alien.
The person must have a social security number, individual taxpayer identification number (ITIN), or an adoption taxpayer identification number (ATIN) issued on or before the due date of the 2023 tax return (including extensions).
The taxpayer, and spouse if filing a joint return, must have an SSN or individual taxpayer identification number (ITIN) issued to them before the due date of the return, including extensions.

Question 29

Child tax credit and other dependent credit phase out

Answer 29

If the taxpayer’s income is above a certain level, the allowable Child Tax Credit and/or Other Dependent Credit may be reduced if:

The amount on Form 1040, line 18, is less than the total of both credits. If this amount is zero, then neither credit may be taken because there is no tax to reduce.

The taxpayer’s modified adjusted gross income (MAGI) is more than the amount shown below for their filing status:
$400,000 — Married filing jointly.
$200,000 — All other filing statuses.
The credit is reduced by $50 for each $1,000, or fraction thereof, of modified AGI over the threshold amounts.

Question 30

Exception to test

Answer 30

On February 4, 2008, the IRS issued Notice 2008-05. This notice clarifies that an individual is not a qualifying child of “any other taxpayer” if the individual’s parent (or other person for whom the individual is defined as a qualifying child) is not required to file an income tax return and either:

Does not file an income tax return.
Files an income tax return solely to obtain a refund of withheld income taxes.