Tag: Qualifying Relative

Posted on by Jan Roberg

What Is a Dependent?

Dependents are usually your children, but they can be parents, siblings, or other relatives so long as they meet the requirements. A dog though, is never considered to be a dependent. Photo by Janice E. Roberg

Dependents are usually your children, but they can be parents, siblings, or other relatives so long as they meet the requirements. A dog though, is never considered to be a dependent.
Photo by Janice E. Roberg

 

If you’re doing your taxes this year, one of the questions you’ll be asked is, “Do you have any dependents?”  What exactly is a dependent anyway?

 

Most often, but not always, a dependent is your kid.  Sometimes, a dependent can be a parent, a sibling, and even in some cases a friend that lives with you.   There are many requirements that you’ve got to meet for a person to qualify as a dependent.  In general though, a dependent is someone that you support.

 

There are two types of dependents:

  1. Qualifying child:  that’s going to be a child or a disabled relative that will qualify you for the Earned Income Tax Credit (EIC)
  2. Qualifying relative:  a qualifying relative will get you an exemption for your taxes, but won’t qualify you to get EIC

Let’s look at the Qualifying child first.  How does the IRS define what a qualifying child is?  Remember, the IRS has weird rules, and it’s not the same as how your family decides who’s related or not.

 

A Qualifying Child must have a valid social security number to qualify for EIC.  If your child doesn’t have a social security number, but she gets one later, you can go back for up to three years to amend the returns.  In addition to a social security number, for EIC a Qualifying Child must also meet the following tests:

Relationship:  Son, daughter, adopted child, stepchild, foster child or a descendent of any of them such as a grandchild, or, a brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them such as a niece or nephew.  Please note that an adopted child or foster child must be placed by the courts.  You’ve got to have legal documentation to support your claim; you can’t just take in your neighbor’s child and call her a foster child.

Age:  At the end of the filing year, your child has to be younger than you (or your spouse if you file a joint return) and younger than 19; or younger than 24 and a full-time student; or permanently and totally disabled.

Residency:  The child must live with you (or your spouse if you file a joint return) in the United States for more than half of the year.

Joint Return:  The child cannot file a joint return for the tax year unless the child and the child’s spouse did not have a separate filing requirement and filed the joint return only to claim a refund.

 

For more details on what is a Qualifying child for EIC purposes, check out this link:  http://robergtaxsolutions.com/2012/05/eic-and-your-family-tree-what-counts-as-a-qualifying-child/

 

Now one of the most common questions I hear about EIC is, “My boyfriend lives with me and my child, but he’s not her biological father, can he claim my daughter for EIC?”  The answer is “NO” because the child doesn’t meet the relationship test to the boyfriend.

 

But, the boyfriend might be able to claim the child as a dependent for an exemption—just not claim EIC for her, because she may be a Qualifying Relative to the boyfriend instead of a Qualifying Child.

 

Rules for claiming a Qualifying Relative:

In order to be a Qualifying Relative the person can’t be a qualifying child.

The second is to pass the member of household or qualifying relative test.  Either the person lives with you for the entire 12 months of the year, or is related to you in your immediate blood line:  your brothers and sisters, and their direct descendants, and their direct ancestors (but not foster parents.)  Also, your in-laws are included here—even if you divorce, as far as the IRS is concerned, your mother-in-law is your mother-in-law forever.  (Heaven help us all!)  If, however, a person was at any time during the year your spouse, he or she can’t be your qualifying relative.  (I know, that looks like a typo—once you marry ‘em, you can’t be related to ‘em.)

 

With the qualifying relative rule there is a gross income test: a qualifying relative can’t make more than the standard exemption in income, which for 2017 is $4,050.  This means taxable income.  If your mother’s only income was $6000 a year from Social Security, that’s not taxable so she’d meet the gross income test.

 

The last requirement is support:  you have to provide your qualifying relative with more than 50% of his or her support.  So, back to your mom on Social Security, if she makes $6,000 a year, and spent it all on food and rent, then you’d have to pay at least $6,000 more towards her support.

 

The rules for Qualifying Relative and Qualifying child can get pretty confusing, especially if you’ve got a unique situation.  The IRS website has a tool to help you decide if you can claim a dependent or not.  As you go through the questions, remember to answer them honestly and you’ll get a reliable answer.  Sometimes people change their answers to get the result they want—that’s how you get into IRS trouble.  Answer honestly and claim what you can, don’t claim what you can’t and you won’t have any problems.

 

IRS Interactive Tool for Claiming a Dependent

Posted on by Jan Roberg

EIC and Your Family Tree: What Counts as a Qualifying Child?

Qualifying child is an IRS term for claiming a dependent.

Family consists of the people we love, but the IRS definition of family is very strict based upon relationship. When filling out your tax forms, remember you need to use the IRS definition of family to claim dependents.

 

Some people honestly don’t know who does and who does not count as a qualifying child for EIC and they mess it up.  But one of the most common types of EIC fraud is someone claiming a child that does not belong on his income tax return.  If you make an honest mistake, the IRS agent is probably  going to assume you’re committing fraud anyway.  So I’m here to keep you out of trouble.

I come from one of those families where we use phrases like, “first cousin once removed.”  When I was a child I remember going to a wedding reception and playing all evening with my “cousin”, only to be told later that she wasn’t a cousin, she was my “father’s half-brother’s step daughter.”  (Yeah, do the calculation, in any normal family your uncle’s kid is a cousin, right?)

I married into a family that is “we’re all one big happy”.  We don’t have steps, or in-laws, or halfs, we’re all brother, sister, mom, cousin, etc.  I think most people are somewhere in between.  But what we’re dealing with today is the IRS version of family and the IRS version of family  goes like this:

Let’s start with you.  You are the center of the universe and all family members revolve around you.  What we’re trying to figure out here is what counts as a Qualifying Child for you—this eliminates all parents and grandparents and members of their generation.

You may count your brothers and sisters.  You must be older than your brother or sister to claim them (unless they are physically or mentally disabled.)   You can also include step brothers and
sisters, and half brothers and sisters, and adopted brothers and sisters.

A step sibling means that your parent married somebody else who had kids.  There is no blood relation, but there is a marriage license.  If your parent did not marry the other person, even though you all live together and think of yourself as one family unit, there is no IRS relationship.

A half sibling means that one of your parents had a child with someone other than your birth mother or father.  Let’s say your mom had you and then left your dad for someone else and had a child—that child is your half sibling—you two share half of a gene pool.  The counts with the IRS.

Adopted siblings are just that—they’re adopted.  There will be court records showing that they were adopted and part of your family.  Adopted children are always treated like natural born children for IRS purposes.

These people are all on your even level of the family tree.  Imagine you’re standing there with your arms straight out with your brothers and sisters side by side—this is your generation.

Down below your generation is your son, daughter, step child, foster child or a descendent of any of them, for example grandchildren or great grandchildren.  Additionally, any descendents of your  generation—those are your nieces and nephews (or great nieces and nephews.)    So let’s say your half brother adopts a child and he dies and you’re raising that child—that counts as your qualifying child for EIC purposes because he is your nephew.

A foster child is a child who has been placed by an authorized placement agency in your home or by a judgment or decree or court order.  No matter what, a foster child has some legal paperwork involved.  If your neighbor runs off and leaves her kid behind and you wind up raising her, she doesn’t count as a foster child until the courts come in and say she’s a foster child.  This is one of the most common mistakes people make—claiming children they’re taking care of as foster children without the court documents to back it up.  Without that legal piece of paper, the child is not a foster child.

Cousins are never qualifying children for EIC purposes.

Posted on by Jan Roberg

Can I Claim My Indian Parents on My US Tax Return?

 

It's difficult to claim foreign parents on a US tax return.

Make sure you meet all of the requirements before you try to claim your parents as dependents on your U.S. income tax return.

 

Claiming parents is difficult, but it can be done if you pass the “Qualifying Relative” tests. But first, here are the two biggies that tend to get in the way:

  1. You cannot claim a married person who files a joint return with his or her spouse. So if your parents file a joint tax return in the United States, then you won’t be able to claim them. (I’m guessing they don’t, but I wanted to make sure that I told you about that.)
  2. To claim someone as a dependent, the person must be a US citizen, US resident alien, US national or resident of Canada or Mexico. Where my clients have had trouble before is when their parents visit the US, but their visas are only for 6 months, no longer. Then they don’t qualify as US residents. I just wanted to make sure you knew about the 6 month rule because that’s the issue most likely to cause Indian families trouble with claiming their parents.  After that, the rules are the same for anyone else in America who wants to claim their parents on their US income tax return.  You need to pass the qualifying relative test.

 

 

The Qualifying Relative Test has 4 parts:

  1. They cannot be considered a qualifying child of anyone else. No problem! As your parents, I’m guessing they’re both over the age of 24. Easy pass.
  2. Member of household or relationship test. As your parents, they do not have to live with you. Also, since they are your parents, they automatically pass the relationship test. Easy pass.
  3. Gross income test. This one is harder. They cannot have more than than $4,050 in gross income for the year. If they are retired, they might qualify, but if they are receiving a taxable pension, that could kick them out of being a dependent. In the US, for example, my mother in law receives Social Security income which isn’t taxable and it doesn’t count as gross income. Her other income is less than $4,050 so she would pass the gross income test for me to claim her as a dependent. Remember, once your parents become US residents, they will be taxed on their “world wide income.”
  4. Support Test. In order to claim your parents as dependents, you must provide more than 1/2 of their support. Let’s say that your parents each earn $3,000 a year in some type of pension. For you to be able to claim them as dependents, you would have to pay more than $3,000 for support for each of them. For example, if they live with you, then you would consider part of your rent or mortgage to be towards their support. Also food, clothing, medical expenses, etc. If they don’t live with you, who is paying for their rent, food, clothing, etc.? Using my mother-in-law as an example again: although I pay some of her bills, I definitely don’t pay over 1/2 of her support. She pays for her food and rent with her Social Security money so I don’t come close to the 50% of her support.

 

If you do find that you qualify to claim your parents, then you would complete the W7 forms for them, so that they have an ITIN number, and submit them with your next tax return.  I find that the best way to handle the W7 form is to take your tax return in to the nearest IRS office with your supporting documents (like passports) and submit them there.  Although it might be inconvenient making the trip, it will save you a lot of hassle in the long run.