I’m sure you have heard the stories about the courageously dim-witted taxpayers among us who have listed non-bipeds as dependents on their tax returns. A biped is an animal with only two legs for locomotion, like you and I.
That negates the dependents that have fins or tails. No invertebrates can be claimed mind you, at least as far as the last time I checked the Internal Revenue Code. Your pet may be your best friend, but for tax purposes, they don’t measure up, no matter how much support you give them.
So who is a dependent and what qualifies one to be claimed as another taxpayer’s dependent?
A dependent is a family member or other person who is supported financially by another, especially one living in the same household. There are a set of rules that all must be met in order to claim someone as a dependent. Each dependent claimed counts as an exemption on your taxes.
An exemption is a term used with respect to taxable income. Each exemption equates to an amount you will be exempted from tax. For tax year 2009 for example, each exemption claimed allows you to deduct $3,650 from your taxable income, or the amount of your earnings you will have to pay tax on.
If you claim a dependent on your tax return, you do not also include their income, if any. He or she may also still be required to file their own tax return, if their income was high enough for the year. If so, they can not claim themselves as an exemption, as you are already entitled to do so.
In order to be a dependent, the person you wish to claim must be what the IRS defines as a “Qualifying Child” or a “Qualifying Relative.”
A Qualifying Child must meet six tests to be considered your dependent:
1. Relationship: Is the person related to you? They must be one of the following: Your son, daughter, stepchild, foster child, adopted child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any them, like your grandchild or niece / nephew.
2. Age: A dependent must be under the age of 19 by December 31st of the filing year, or a full time student (attending a school five months out of the year) under the age of 24. If an individual is permanently and totally disabled, they meet this test, regardless of their age.
3. Residency: The dependent must have lived with you for more than half of the calendar year. Special rules apply for parents that are separated or divorced.
4. Support: You must have provided more than half of the dependent’s support for the calendar year.
5. Joint Return: Your dependent, if married, cannot file a joint tax return for the year they are to be claimed.
6. Special rules for a Qualifying Child of more than one person: At times, the above five tests can be met than more than one person. Although one parent may have actually provided more than half of the support, on paper, especially in the case of joint custody, support may be considered to be equal.
In this instance, only one person can legally claim the exemption, along with any related credits, such as the Child Tax Credit or the Earned Income Tax Credit. You cannot “split” these monetary benefits with the other party.
In order to determine who has the legal right to claim the child, the following must be considered: Who is the custodial parent? If there is only one parent and a step-parent, in general, the actual parent is granted the tie-breaker. Did the child live with one parent longer than the other? If the amount of time is equal, then the parent with the higher Adjusted Gross Income will be granted the exemption.
In order to claim an exemption for a Qualifying Relative, there are four tests:
1. Cannot be a Qualifying Child: Simple enough. If they meet the six tests discussed above for a Qualifying Child, then they are not considered a Qualifying Relative.
2. Member of Household or Relationship: In order to meet this test, the person you wish to claim as a dependent must have lived with you as a member of your household for the entire year, or be related to you.
3. Gross Income: As of 2009, the income threshold for this test is $3,650. In other words, they cannot have any source(s) of gross income over this amount.
4. Support: Similar to the support test for a Qualifying Child, you must be able to show that you have provided more than half of the person’s support during the year.
For more information on the above rules, as well as various examples and helpful worksheets, see IRS Publication 501, Exemptions, Standard Deductions and Filing Information.