Qualifying Child, Qualifying Relative, and Qualifying Non-Relative
In order to claim a dependency exemption or a tax credit for dependents, the dependent must satisfy the requirements for a qualifying child or relative, the primary requirement being that the taxpayer claiming the dependent provided more than ½ of the dependent's support during the tax year and the dependent's residence was the same as the taxpayer's for more than ½ of the year. A taxpayer may also claim certain deductible expenses, such as medical expenses, that are paid on behalf of a qualifying child or relative. A non-relative can also be claimed as a dependent if he lived with the taxpayer for the entire calendar year and the living arrangement does not violate local law.
A qualifying child must satisfy 5 requirements listed in IRC §152 (c):
- The qualifying child must satisfy the relationship requirement, by being 1 of the following:
- son or daughter, either as a natural child or stepchild, or a descendant thereof;
- sibling, stepsibling, or a descendant thereof;
- foster or adopted child.
- The individual must, by the end of the calendar year, be younger than 19 or younger than 24 if a full-time student. There is no age limitation for a permanently disabled child.
- Dependents must have the same principal residence as the taxpayer for more than ½ of the year. This residency requirement excludes temporary absences such as for illness, school, vacation, or military service where the child has every intention of returning. However, special rules apply to children of divorced or separated parents. A child who is either born or dies during the tax year is considered to have lived with the taxpayer for the entire year if the child lived in the taxpayer's home while still alive.
- The claimed dependent must not provide more than ½ of her own support during the year. However, income from scholarships is not considered support.
- Only 1 dependent can be claimed by 1 individual, so in those cases where more than 1 taxpayer can claim a dependent, the taxpayers must decide who will claim the exemption.
If a child fails to meet all the requirements of a qualifying child, the individual may still be claimed as a qualifying relative, if they meet the requirements.
A qualifying relative includes all the relationships defined for a qualifying child, but also includes (IRC §152 (d)):
- half-brothers and half-sisters;
- parents, grandparents, or other direct ancestors;
- stepparents, aunts or uncles, nieces or nephews;
- sons- and daughters-in-law, father-in-law, mother-in-law, and brothers- or sisters-in-law;
- or any individual who lived the entire year in the taxpayer's principal place of residence and is also a member of the taxpayer's household.
However, nieces, nephews, aunts, and uncles, can only be claimed if they are blood relatives of the taxpayer claiming the dependency exemption.
A qualifying relative must also satisfy all the other requirements of a qualified child, except that parents or grandparents do not have to satisfy the residency requirement. For instance, even if the parent lives elsewhere, a child providing for more than half of the parent's support can claim a dependency exemption for the parent.
The taxpayer must provide more than ½ of the individual's support for the calendar year, and the dependent's gross income must be less than the personal exemption. For a qualifying relative, statutory gross income, which is gross income without any deductions, is considered in deciding whether the qualifying relative earned at least the personal exemption amount. Any income that is excludable, such as exempt interest, disability, or Social Security payments, is not included in the statutory gross income, but is considered for determining whether the taxpayer has furnished more than half of the dependent's support.
Example: Rachel pays $12,000 for her father's support. Her father receives $10,000 in Social Security payments and $3000 of self-employment income. Therefore, her father's statutory gross income is equal to $3000, which is less than the personal exemption, but his total income is $13,000, which is more than half of his support, so Rachel cannot claim her father as a dependent.
Moreover, a qualifying relative:
- must be a US citizen or a resident of the United States, Canada, or Mexico;
- cannot also be a qualifying child of another taxpayer for the tax year, except if the individual who could claim the child does not file a tax return or files a return only to claim a refund of withheld taxes;
- cannot file a joint return unless it is solely for claiming a refund.
If a dependent is not a relative, then a qualifying non-relative must satisfy all the rules for a qualifying relative, except that the non-relative must live with the taxpayer for the entire year, instead of just ½ of the year, and the living arrangement cannot violate local law.
Separated or Divorced Parents: Tax Benefits for the Custodial and Noncustodial Parent
Tax rules change for parents who are separated or divorced. Most of the tax benefits of children can still be claimed by the custodial parent, but some tax breaks are available to both parents, and some tax breaks can be available to the noncustodial parent if the custodial parent agrees to allow it.
For children of divorced or separated parents, the parent who has primary custody of the child can claim the dependency exemption. If the child spends an equal amount of time with each parent, then the parent with the highest adjusted gross income can claim the dependency exemption.
However, the custodial parent can waive the dependency exemption if:
- the parents are divorced or legally separated, or lived apart at all times during the last 6 months of the calendar year;
- one or both parents provided more than ½ of the child's total support for the calendar year;
- and one or both parents have legal custody for more than ½ of the calendar year.
The custodial parent must fill out and sign Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, which allows the custodial parent to grant the exemption for the current year and for future years by specifying the tax years for which the exemption will be valid. The noncustodial parent must attach Form 8332 to his tax return for each year the exemption is claimed. The noncustodial parent can also claim the child tax credit and any educational credits if the noncustodial parent paid the educational expenses. Part 3 of Form 8332 allows a custodial parent to revoke a previous waiver of the right to the exemption for the child in a future year. However this revocation does not take effect until the year following in which a copy of the revocation is provided to the noncustodial parent.
Even if the noncustodial parent claims the dependency exemption, the custodial parent can still claim head of household filing status, dependent care credit, exclusion of dependent care benefits, and the earned income tax credit. The custodial parent can also still claim the child as a beneficiary of fringe benefits provided by the custodial parent's employer.
Summary: Tax Benefits for the Custodial and Noncustodial Parent
Tax breaks available to both parents, even without Form 8332:
- itemized deductions for the child's medical expenses paid by the parent
- tax-free employer-provided health care benefits for the child
- tax-free health savings account distributions that cover the child's medical expenses.
Tax breaks available only to the custodial parent:
- head-of-household filing status
- earned income credit
- dependent care credit
- tax-free child care assistance, which allows employer reimbursements of up to $5000 for the custodial parent's qualified childcare expenses from a flexible spending account arrangement
Tax breaks that the noncustodial parent can claim and the custodial parent cannot claim, if the custodial parent permits it, by signing Form 8332. The noncustodial parent must file Form 8332 with his tax return for every year that the permission is granted:
- dependency exemption
- child tax credit
- higher educational tax credits: the American Opportunity Credit and the Lifetime Learning Credit
- student loan interest deduction, up to $2500 paid by the noncustodial parent of qualified student loan interest paid by the noncustodial parent
- higher educational tuition deduction, where up to $4000 of tuition, books, supplies, equipment, and mandatory enrollment fees
Note that most of these credits and deductions are reduced or eliminated for higher income taxpayers. Details are provided in the referenced articles.
Tie-Breaking Rules For Claiming the Same Dependent
Tie-breaking rules apply if more than one taxpayer can claim the same dependent.
Married dependents who file jointly cannot be claimed as a dependent unless a joint return was filed solely to obtain a refund and neither spouse would have any tax liability if they filed separately.
If 2 or more taxpayers can claim the same qualifying child, then the following tie-breaking rules apply:
- the child's parent, if only one of the taxpayers is the child's parent;
- if the child's parents did not file a joint return, then the parent who lived longest with the child will be the qualifying parent;
- if the child resided with both parents, then the child is a qualifying child of the parent with the highest adjusted gross income (AGI); likewise, if neither taxpayer is the child's parent;
- if neither parent claims the child, even though they are able to do so, then the child can become the qualifying child of any other taxpayer if their AGI is higher than the AGI of either parent.
The rules for deciding who can claim a qualifying child also decides who can claim the child for the following:
- head-of-household filing status,
- child tax credit,
- earned income tax credit (EITC),
- dependent care credit, and
- exclusion for dependent care benefits.
Multiple Support Declaration, Form 2120
If any taxpayer cannot claim more than ½ of the support for an individual, but the individual is supported by several individuals under a multiple support agreement, then any taxpayer who provided more than 10% of the dependent's support can claim the dependency exemption if a multiple support declaration is filed. The taxpayer claiming the dependency exemption must attach Form 2120, Multiple Support Declaration to his return, which states that each person who contributed more than 10% of support has signed a written declaration stating that they will not claim the exemption. The declaration statement must include the calendar years for which the waiver applies, the name of the qualifying dependent, and each taxpayer's name, address, and social security number who could have claimed the exemption. These written declarations should be retained by the taxpayer claiming the exemption, so that they are available if the IRS requests them, since they are not filed with the tax return.