Qualifying Child and Qualifying Relative

2024-12-29To 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 1/2 of the dependent's support during the tax year and the dependent's residence was the same as the taxpayer's for more than 1/2 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.

Qualifying Child

A qualifying child must satisfy 5 requirements listed in IRC §152 (c):

1. The qualifying child must satisfy the relationship requirement, by being 1 of these:
   • son or daughter, either as a natural child or stepchild, or a descendant thereof;
   • sibling, stepsibling, or a descendant thereof;
   • foster or adopted child.
2. 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.
3. Dependents must have the same principal residence as the taxpayer for more than 1/2 of the year. This residency requirement excludes temporary absences such as for illness, school, vacation, or military service where the child intends to return. 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.
4. The claimed dependent must not have provided more than 1/2 of their own support during the year, even if they were able to. However, income from scholarships is not considered support.
5. 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.

The taxpayer claiming the qualified child is the only one who can claim, concerning that child:

• head-of-household filing status
• earned income credit
• child tax credit
• dependency exemption
• 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

Qualifying Relative

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 other relative who lived the entire year in the taxpayer's principal place of residence and is also a member of the taxpayer's household.

A qualifying relative satisfies the qualifying relative relationship test if the relationship satisfies the qualifying child relationship test or any of the relatives listed above except for the last item. These relatives do not need to reside with the taxpayer to be claimed as a qualifying relative. 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. Note that any qualifying relationship that was established by marriage is not ended by divorce or death: the qualifying relative status test will still be satisfied for every year that all other tests are met.

However, nieces, nephews, aunts, and uncles, can only be claimed if they are blood relatives of the taxpayer claiming these as dependents. A spouse or a qualifying child either of the taxpayer or of any other taxpayer can never be claimed as a qualifying relative.

Support Test

The taxpayer must provide more than 1/2 of the individual's support for the calendar year. The dependent's own funds, including Social Security benefits, are not counted unless they are actually spent for the dependent's support. Social Security benefits paid to children of deceased parents are treated as their own support even if the benefits are paid to the surviving parent or a custodian.

Most government benefits to dependents — including Supplemental Security Income, welfare, food stamps, and even G.I. Bill educational assistance — are considered support by the government. Foster care payments or any support provided by states, such as for a juvenile home, is considered 3^rd-party support. Support provided for dependents who are in the military is considered government support.

Only the total amount of support for the year is considered, not how long the support was provided. So, if more than 1/2 of the support is provided in 6 months of that year, then the support test is satisfied.

If there is more than 1 dependent in the household, and your contribution does not exceed 50% of the total household support, then you may be able to claim 1 or more dependents by earmarking your contributions to those dependents so that your contribution exceeds 50% for their support. However, you must document this support; otherwise, the IRS will allocate your contribution equally to all household members.

Support includes paying for:

• food and lodging
• clothing
• medical and dental expenses
  • premiums for health insurance or Medicare
• education expenses
  • dependent must be a full-time student for at least 5 months of the year; otherwise the scholarship will counted as support by the dependent
  • student loans where the dependent is the loan obligor is considered their support, even if you guarantee the loan
  • scholarships for full-time students are not considered support for your dependent, including:
    • Naval R.O.T.C. payments
    • War Orphans and Educational Assistance scholarships
    • Survivors and Dependents Education Assistance
• transportation expenses, including the cost of a motor vehicle if registered in the dependent's name
  • expenses for vehicles in your name are considered part of your support contribution if used by your dependent
• travel, entertainment, and recreation, including:
  • computers
  • cell phones
  • TVs
  • vacations
  • wedding expenses
  • musical instruments

Not counted as support by the dependent include:

• if paid by the dependent:
  • taxes
  • life insurance premiums
• medical insurance benefits, including Medicare and Medicaid benefits received by the dependent

The dependent's gross income must be less than the gross income limit for a qualifying relative, which is adjusted for inflation. 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 gross income limit for a qualifying relative. Excludable income, 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.

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.

Alimony or separate maintenance payments or distributions from the an estate or trust to a legally separated or divorced payee spouse is not considered support provided by the payer spouse, but a distribution from an estate or trust designated as support for the payer spouse’s minor children is considered support provided by the payer.

Separated or Divorced Parents: Tax Benefits for the Custodial and Noncustodial Parent

Tax rules change for separated or divorced parents. 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 during the last 6 months of the calendar year;
• one or both parents provided more than 1/2 of the child's total support for the calendar year;
• and one or both parents have legal custody for more than 1/2 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 after 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.

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 get 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 these tie-breaking rules apply:

• the child's parent, if only 1 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 can, then the child can become the qualifying child of any other taxpayer if their AGI exceeds the AGI of either parent.

The rules for deciding who can claim a qualifying child also decide who can claim the child for:

• 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 1/2 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.

Historical Notes

• The Tax Cuts and Jobs Act eliminated the personal exemption but has set the maximum income for a qualifying relative, adjusted annually for inflation.