Unit 3 - Dependency Relationships Flashcards
Personal and dependency exemptions
This has been suspended through the 2025 tax year, started in 2017
Eliminated by the tax cuts and jobs act
Tax benefits associated with a dependent
Child tax credit – CTC
Earned income tax credit – EITC
Child and dependent care credit
Head of household filing status
Credit for other dependence – ODC – and other tax benefits
Test to determine if a taxpayer can claim a dependent
There are three primary test for dependency…
Dependent taxpayer test
Joint return test
Citizenship or residency test
Test #1 Dependent taxpayer test
A person who may be claimed as a dependent by another taxpayer, may not claim anyone as a dependent on their own tax return
A qualified dependent can only be claimed on one tax return, even if more than one qualify
Test #2 joint return test
If a married person files, a joint return, that individual cannot be claimed as a dependent by another taxpayer
Only Exception - if joint return is filed ONLY to claim a refund and neither spouse would have a tax liability even if filing separately
Test #3 citizenship, or residency test
He dependent must be a citizen or resident of the United States, Canada, or Mexico
Exception exist for foreign foreign adopted children must live with the taxpayer as a member of the household all year
Rules for a qualifying child
The test for a qualifying child are more stringent because it entitles taxpayer to claim refundable tax credits, including the earned income tax credit and the additional child tax credit
There are five test for a qualifying child
Relationship test
Age test
Residency test
Support test
Tiebreaker test – for a qualifying child of more than one person
Qualifying child Test number one – the relationship test
The qualifying child must be related to the taxpayer by blood marriage or legal adoption. Plus a foster child.
A child, stepchild, or adopted child
A sibling, half sibling, or step sibling
A descendent of one of the above (such as a grandchild, niece or nephew)
A foster child
Qualifying child Test number two – the age test
In order to be a qualifying child, the dependent must be:
Under the age of 19 at the end of the tax year, or
Under the age of 24 at the end of the tax year and a full-time student (enrolled part of at least 5 months) or
Permanently and totally disabled at any time during the year, regardless of age
A child who is claimed as a dependent, must be younger than the taxpayer claiming him except in the case of the disabled dependent.
If filing jointly, the child must be younger than only one spouse
Qualifying child test number three – the residency test
The qualifying child must live with the taxpayer for more than half the tax year.
It does not need to be a traditional home. They could live together in a homeless shelter.
In most cases, a child is the qualifying child of the custodial parent
Exceptions for temporary absence
Qualifying child test number four – the Support test
A qualifying child cannot provide more than 1/2 of their own support
State benefits provided to a person such as welfare food, stamps, or subsidized, housing, or considered support provided by the state
Social Security benefits are considered to be provided by the child not by the parents
The definition of “support”
Includes only income that is used for living expenses
A person’s own funds are not considered support unless they are actually spent for Support
Example, if a child earns income that is saved in a bank account, it does not count as Support
Qualifying child test number five – tiebreaker test
Sometimes a child meets the rules to be a qualifying child of more than one person
If more than one taxpayer attempts to claim the same child, the tiebreaker rules apply in the following sequence
- By the child’s parents if they file a joint return.
- By the parent, if only one of the taxpayers is the child’s parent.
- By the parent with whom the child lived the longest during the year.
- by the parent with the highest AGI, if the child lived with each parent for the same length
- By the taxpayer with the highest AGI, if neither parent can claim
- by taxpayer with a higher AGI than either of the child’s parents who can also claim the child as a qualifying child, but does not
Rules for a qualifying relative
A person who is not a qualifying child may still qualify as a dependent under the rules for a qualifying relative
Even an individual of any age who is not a family member can be a qualifying relative
To be claimed, the following must be met
Not a qualifying child test
Member of household or relationship test
Gross income test
Support test
Qualifying relative test #1 - not a qualifying child test
If a child is already a qualifying child for any taxpayer, the child cannot be a qualifying relative of another taxpayer
One exception, a child may qualify as the taxpayers dependent, even if that child is the qualifying child of another taxpayer only when the child’s parent is not required to file an income tax return and either does not file or only files to get a refund of income tax withheld or estimated tax paid
Qualifying relative test #2 - member of household or relationship test
A dependent that is not related to the taxpayer must have lived with the taxpayer the entire tax year in order to meet the member of household test
But a family member related to the taxpayer does not have to live with the taxpayer to meet this test (don’t include cousins)
Cannot claim household employees or house keeper
A relationship established by marriage does not end as a result of death or divorce. In-laws can still be claimed as dependents with the relationship test.
Qualifying relative test #3 - gross income test
The dependence, gross income for the tax year must be less than the threshold amount. Cannot earn more than the deemed exemption amount of $4700.
Gross income includes all income in the form of money, property and services that are not exempt from tax
Qualifying relative test #4 - Support test
The taxpayer must provide more than 1/2 of the dependence total support during the year
Support includes the cost of necessities like food, housing, clothing, healthcare, education, and other similar expenses
It also includes amounts from Social Security and welfare payments, even if that support is non-taxable
Unlike the qualifying child support test, the qualifying relative support test considers all income, taxable, and non-taxable
Claiming a child – special rules for divorced and separated, parents
In most cases, the child is the qualifying child of the custodial parent
But the custodial parent may permit the non-custodial parent to claim the child
Non-custodial parent must attach form 8332, release/revocation of release of claim to exemption for child by custodial parent , to tax return
A child may be treated as the qualifying child of the non-custodial parent if all the following conditions apply
- Parents are divorced or legally separated, or lived apart during the last six months of the year
- The child received over half of their support for the year from the parents.
- The child is in the custody of one or both.
- The custodial parent signs form 8332 and the non-custodial parent attaches this declaration to their return.
But head of household, filing status, and the earned income tax credit can only be claimed by the custodial parent
Form 8332 is also used by the custodial parent to revoke the release. The earliest revocation will apply is the year following the year the revocation was provided to the non-custodial parent.
Claiming a relative – multiple support agreements
A multiple support agreement is when two or more people jointly provide for a person support. Commonly when adult children take care of their parents.
Family members together must pay more than half of the person total support, but no one member individually may pay more than half
Use form 2120, multiple support, declaration, to report a multiple support arrangement
Acknowledging they do not pay more than half of the cost, but that the other individuals who share the cost allow the taxpayer to claim that person as a dependent
The taxpayer claims dependent must provide more than 10% of the support
Only one taxpayer can claim the dependent each year, but different qualifying family members can agree to claim in different years
