Section 1: Unit 3: Dependency Relationships Flashcards
3 tests to determine if a taxpayer can claim a dependent
- Dependent taxpayer test: dependent cannot claim anyone as their own dependent
- joint return test: if a married person files jointly, they cannot be claimed as a dependent
- citizenship/residency test: must be a citizen or resident or US, Canada, or Mexico
Exception for joint return test for dependents
does not apply if the joint return is only filed to claim a refund (ex. husband files to get a refund from taxes that were withheld from wages)
Qualifying child tests
Relationship test: related by blood, marriage, or adoption. Includes foster child.
Age test: under 19 by end of tax year, under 24 & FT student, or permanently & totally disabled
Must be younger than the taxpayer, except for those that are disabled
Residency test: must live with taxpayer for over six months of the year.
temporary absences are OK and include illness, college, vacation, military service, juvenile incarceration, etc. As long as the kid is expected to return home eventually.
Support test: a qualifying child cannot provide more than one-half of their OWN support. state benefits are generally considered support provided by the state. Social security benefits of the child are considered to be provided by the child. A FT student does not take scholarships into account.
Tiebreaker test (for a qualifying child of more than one person): Not mandatory. If taxpayers can come to an agreement as who will claim the child, no need to go through the test. Higher AGI wins.
** Residency trumps everything!!
Tests for Qualifying Relatives
- can be any age. death/divorce does not change the relationship status (ie you take care of your MIL after your wife dies)
The dependent must
- not a qualifying child test: cannot be a qualifying child for any other taxpayer
-
member of household or relationship test:
>a dependent that is not related needs to live with the taxpayer for the entire year
> a related family member does not have to live with the taxpayer
> may not claim any household employee as a dependent -
gross income test: none for qualifying child:
> cannot earn more than the ‘deemed exemption’ amount $4,700 in 2023. - support test: must provide more than 1/2 of the dependent’s total support during the year. includes food, clothing, shelter, education, medical, social security/welfare. Very different from qualifying child support test.
Special Rules for Divorced/Separated Parents
- Form 8332: Release of Cliam to Exemption. Custodial parent may permit the noncustodial parent to claim the child. The noncustodial parent does not have to have the kid living with them (residency test)
- EITC and HOH filing status can still only be claimed by the custodial parent
Multiple Support Agreement
- Form 2120
- Ex. adult children support the one parent
- Not any one taxpayer is paying MORE than 50% of the dependent’s support (Sister 1 provides 20%, Sister 2 provides 30%, etc). They must provide >10% of support. Only one family member can claim per year, they switch off.
- Question ID: 94815923 (Topic: Qualifications for Dependency)
Randall is 65 years old and lives with his son and daughter-in-law. Randall is retired, and his taxable pension income for the year was $12,000. Randall doesn’t plan to file a tax return. Can Randall’s son and daughter-in-law claim him as a dependent?
A. Yes. Randall’s son and daughter-in-law can claim him as a dependent.
B. No. Randall’s son and daughter-in-law cannot claim him as a dependent because his income exceeds the threshold amount.
C. Yes. Randall’s son and daughter-in-law can claim him as a dependent as long as Randall doesn’t file his own return.
D. None of the answers are correct.
Correct Answer Explanation for B:
Randall’s son and daughter-in-law cannot claim him as a dependent because his taxable income exceeds the threshold amount for a qualifying relative, which is $4,700 in 2023 (question based on a VITA tax training question).
- Question ID: 94815903 (Topic: Qualifications for Dependency)
Benedict is unmarried and lives alone. His mother, Rosalie, only received $5,600 of Supplemental Security Income (SSI) and $100 of taxable interest income during the year. Rosalie paid $4,000 for her utilities and other living expenses and also paid $400 for recreation to attend painting classes. Rosalie also put $1,300 in a savings account. Benedict spent $5,800 of his own money on his mother’s support, which paid her rent at a small studio apartment for the entire year. Benedict and his mother did not live together. Which of the following statements is correct?
A. Benedict cannot claim his mother as a dependent, and he cannot file as head of household.
B. Benedict can claim his mother as a dependent and also file as head of household.
C. Benedict can claim his mother as a dependent, but he cannot file as head of household.
D. Benedict cannot claim his mother as a dependent, but he can file as head of household.
Correct Answer Explanation for B:
Benedict can claim his mother as a dependent, and he can also file as head of household. Even though his mother received a total of $5,700 ($5,600 + $100), she spent only $4,400 ($4,000 + $400) for her own support. The rules for the determination of a qualifying relative includes an income test. In general, family members must have gross income that is less than $4,700 in 2023. However, Supplemental Security Income (SSI) is tax-exempt, so those amounts aren’t included in the family members’ gross income. Since Benedict paid more than half her support and no other outside support was received, he has passed the support test to claim his mother. Also, Benedict paid for all her rental expenses, so he paid more than half the cost of keeping up a home that was the main home for the entire year for his parent. Therefore, Benedict is also eligible to file as head of household.
- Question ID: 94815973 (Topic: Qualifications for Dependency)
Teddy is 19 years old and a full time college student. He works part time during school and full time during the summer. His wages from work for the year are $5,150 and his savings account earned $175 interest income. Teddy is claimed as a dependent on his parents’ return because they provide more than half of his support. Based on this information, which of the following statements is true?
A. Teddy has to file a tax return to report his wages and investment income. His parents can still claim him as a dependent.
B. Teddy does must file a tax return, because his gross income is more than the gross income limit for dependents.
C. Teddy does not have to file a tax return, as long as his parents can claim his wages and investment income on their tax return.
D. Teddy does not have to file a tax return, because his gross income is not more than his standard deduction. He is not subject to the kiddie tax.
Correct Answer Explanation for D:
Teddy does not have to file a tax return, because his gross income is not more than his standard deduction, and he is not subject to the kiddie tax. He is a full time student under the age of 24, so he is considered a qualifying child (not a qualifying relative). Almost all his income is from wages, which are earned income, and are therefore exempt from the kiddie tax rules. The kiddie tax only applies to unearned income. Only unearned income above $2,500 in 2023 is subject to the kiddie tax and taxed at the parent’s marginal income tax rate.
- Question ID: 94816042 (Topic: Qualifications for Dependency)
With regards to a child of divorced or separated parents, how does the IRS define the “custodial parent”?
A. The custodial parent is the parent who is listed on the court documents with primary custody.
B. The custodial parent is the parent who pays for the majority of the household costs for the home in which the dependent lives.
C. The custodial parent is the parent who supports the child financially.
D. The custodial parent is the parent who has physical custody of the child for the greater portion of the calendar year.
Correct Answer Explanation for D:
The IRS defines a “custodial parent” as the parent who has physical custody of the child for the greater portion of the calendar year. However, the child will be treated as the dependent of the noncustodial parent if the custodial parent releases a claim to exemption for a child using Form 8332.
- Question ID: 94816031 (Topic: Qualifications for Dependency)
With regard to children of divorced taxpayers, what is the most important factor for the determination of which parent can claim a dependent?
A. Federal tax law is what determines who may claim a child as a dependent.
B. State tax law is what determines who may claim a child as a dependent.
C. The divorce decree is what determines who may claim a child as a dependent.
D. Official IRS publications determine who may claim a child as a dependent.
Correct Answer Explanation for A:
Federal tax law is what determines who may claim a child as a dependent. Even if a state court order or a divorce decree allocates the ability to claim the child to a noncustodial parent, the noncustodial parent must comply with the federal tax law to claim the dependent. The noncustodial parent must attach to his or her return a copy of the release of claim to exemption by the custodial parent (Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent).
- Question ID: 94815827 (Topic: Qualifications for Dependency)
Calista is 16 years old and she has a reputation for being the best babysitter in town. She earns $14,320 by babysitting for family and friends during the tax year, but none of her clients file a 1099-NEC reporting her income. Her parents claim Calista as a dependent and she does not provide more than one half of her own financial support. What is true about Calista’s tax situation?
A. Since Calista is under 18, she does not need to file a tax return or report her income.
B. Since Calista did not receive any 1099 forms, she is not required to file a tax return or report her income.
C. Calista is required to file a tax return to report her income, but she will be exempt from self-employment tax.
D. Calista is required to file a tax return to report her income and can deduct business expenses relating to babysitting.
Correct Answer Explanation for D:
Even though she is under 18, the amount of income Calista made exceeds the limit for filing a return. She is required to file a Form 1040, even if she is claimed by her parents. If Calista pursues this babysitting activity with a bona-fide “intent to make a profit”, then she is considered self-employed, and her business income would be reported on Schedule C. Calista may also deduct any business expenses relating to her babysitting business.
- Question ID: 94816041 (Topic: Qualifications for Dependency)
Larry has been divorced from his wife, Angela, for several years. Angela has primary physical custody of their son, according to their final court decree. Angela did not provide any support for their son, because Larry was providing alimony and child support to Angela. The son lived with Angela all year long, but Angela released her right to claim the child as a dependent to Larry. What is Larry’s filling status in this scenario?
A. Married filing jointly
B. Single
C. Married filing separate
D. Head of Household
Correct Answer Explanation for B:
Using the Form 8332, Angela can release the dependency exemption to Larry. Then the father could claim the child as the noncustodial parent. But he cannot file as head of household, because the child did not live with him. So he would claim single and also claim his son as a dependent.
Note: If a custodial parent releases a claim to exemption for a child, the noncustodial parent may claim the child as a dependent and as a qualifying child for the child tax credit or credit for other dependents. However, the noncustodial parent may not claim the child for the purpose of claiming head of household filing status, the earned income credit, the credit for child and dependent care expenses. See IRS FAQ on this topic here.
- Question ID: 94816000 (Topic: Qualifications for Dependency)
Which of the following can never be claimed as a dependent?
A. A taxpayer’s adult child.
B. A taxpayer’s parent.
C. A taxpayer’s cousin.
D. A taxpayer’s spouse.
Correct Answer Explanation for D:
A taxpayer’s spouse cannot be claimed as a dependent. Some examples of dependents include a child, stepchild, brother, sister, or parent.
- Question ID: 94816018 (Topic: Qualifications for Dependency)
All the following qualify as a dependent except:
A. Your deceased wife’s mother, who is 65 and lived with you for 11 months during the tax year. She had no income and filed no tax return. You provided more than half of her total support.
B. Your 18 year-old niece who is a resident of Mexico but lived with you for 10 months. She earned $500 during the summer and you provided more than half of her total support.
C. Your 23 year-old daughter who is not a student and earned $4,800. She lived with you all year and you provided more than half of her total support.
D. Your 18 year old son who filed a joint return with his wife to receive a refund of all his withholding. No tax liability would have been due even if they had filed separate returns. All other exemption tests are met.
Correct Answer Explanation for C:
A 23 year-old daughter who is NOT a student and earned $4,800 cannot be a dependent (unless she is disabled), because she does not meet the age test and she earned more than the deemed exemption amount for qualifying relatives (if the dependent is being claimed under the qualifying relative rules, the dependent’s gross income must be less than $4,700 for the year). (This question is based on a prior year exam question)
