With many families seeing the economic benefit of multi-generational households, there’s another benefit you may be wondering about: tax breaks.
If you support someone in your family financially, such as a parent or adult child, you may be able to claim them as a dependent even if you don’t live in the same household.
The IRS has a few tests to help you determine if your financial support allows you to claim a qualifying child or a qualifying relative. The tax credit depends on how your dependent is qualified; the credit for a qualifying child is $2,000 and the credit for a qualifying relative is $500.
Figuring out whether your support qualifies you to claim a dependent can be a little tricky in some cases.
Who Can Qualify as a Dependent?
A dependent is someone who relies on you for financial support, including housing, food, clothing, and more.
While the vast majority of claimed dependents are the minor children of taxpayers, there are several circumstances where taxpayers can claim adult dependents as well. If you support one or more qualifying relatives, the IRS offers a tax credit to you.
There are some basic screening questions that the IRS asks to make sure you are truly supporting the people you want to claim as your dependents. The first test is a check to see whether someone else can claim you as a dependent—if so, then you cannot claim others as your dependents. Further, if you claim someone as a dependent, no one else can claim them (apart from your spouse if you file jointly).
All dependents must be either US citizens, nationals, resident aliens, or residents of Canada or Mexico (and have a SSN, ITIN, or ATIN). Additionally, you cannot claim someone as a dependent if they are filing a joint return with a spouse.
Qualifying Child Dependents
This category of dependents is intended for individuals who are still minors or young adults. While you may still be about to claim your adult children as dependents, once they reach a certain age they would be categorized as qualifying relatives instead.
A qualifying child can be your own offspring, but you can also claim your adopted or foster child, your sibling, stepsibling, and more, if they meet all the following criteria:
- They must be younger than you.
- They must be under the age of 19, or if they are students they must be under the age of 24.
- There is no age limit for qualifying children if they are permanently and totally disabled.
- The child must live with you for more than half the year, with some exceptions (most notably education). For divorced parents, the custodial parent is typically the one who can claim the child as a dependent, unless the custodial parent signs a release to the non-custodial parent.
- You must have provided more than half of the support for the child.
For example, if your child is 23 and is attending school, they may have lived at school for most of the year, but education is an exception to the residence requirement. If you provided over half their support, you can claim them as a dependent. However, if your child has a part-time job while attending school, and that job provided over half of their support, you cannot claim them as a dependent.
In another example, if your brother and his minor son have fallen on hard times and moved in with you, you may be able to claim both of them as dependents. Your brother may be a qualifying relative, and his son may be a qualifying child, provided they meet the criteria.
If you support your adult child, but they do not meet the qualifying child requirements, you can most likely claim them as a qualifying relative.
Also, do note that the dependent exemption for a qualifying child is not the same thing as the child tax credit—and in fact, you may be able to claim both on your tax return to reduce your tax obligation even further. The child tax credit has stricter requirements, as your child must be younger than 17.
Qualifying Relative Dependents
The IRS has a very broad definition of “qualifying relative,” which can even include non-relatives. First, in order to be claimed as a dependent, your qualifying relative must pass the relationship test:
- Anyone who lives with you all year long (365 days) can potentially be a qualifying relative, regardless of whether or not you are technically related.
- If you support someone who did not live with you all year, they must be related to you as a child, foster child, grandchild, parent, grandparent, sibling, descendent of your sibling, uncle, or aunt. Step and half relationships are included, as well in-law children, parents, or siblings (even if your spouse has passed away).
In addition to the relationship test, your dependent must also pass the following tests:
- You must have provided more than half of their support.
- They cannot have a gross income of $4,300 or more.
For example, if your sister lost her job in April and moved in with you, and you provided full support for her for the rest of the year, can you claim her as a dependent? Not if she made over $4,300 while working at her job.
In another example, let’s say your father-in-law is retired and has no income, relying mainly on his savings. If you send him a check once in a while, can you claim him as a dependent? You can only claim him if your checks are covering over half of his living expenses.
Can I Claim My Parent as a Dependent if My Siblings Also Provide Support for Them?
Sometimes you and others might pool your money to support an adult dependent, such as a group of siblings all contributing to their parent’s living expenses. For example, if there are four siblings who each pay 25% of their parent’s living expenses, then technically no one fits the criteria to claim the parent as a dependent.
In this situation, a Multiple Support Agreement is the way to determine which sibling can claim a dependent—and remember, only one person can claim the parent as a dependent. Each person who contributed must sign the agreement. The person who claims the parent as a dependent must have contributed at least 10% of their living expenses, but no person on the form can have provided more than 50% of their living expenses.
Claiming dependents can be tricky to figure out. For instance, what if one sibling let their aging parent move in with them and didn’t contribute financially, but all the other siblings chipped in with money? In order to figure out if a Multiple Support Agreement can be used, it depends on the value of the room and care provided, and the financial contributions.
Consult S.H. Block Tax Services to Make Sure You Claim Dependents Correctly
Improperly claimed dependents—even if done accidentally—can result in penalties from the IRS. If you aren’t sure if your situation qualifies you to claim someone as a dependent, you should talk to a tax professional who is familiar with reading and interpreting tax law. Remember, if you made a mistake on previous tax returns, it’s better to amend them yourself rather than risk penalties and interest from the IRS.
For questions about whether you can claim someone as your dependent, or any other tax matters, start with a free consultation with S.H. Block Tax Services. Get started by calling us at (410) 793-1231 or completing this brief form to ask us your tax questions.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.