12 Tricky Tax Dependent Dilemmas

You’d think that knowing when someone qualifies as a tax dependent would be a simple matter. Think again!

A few years ago, then-Secretary of the Treasury Paul O'Neill condemned the federal tax law as "an abomination." Far from the first person to gripe about the complexities of the law, what really bugged O’Neill at the time was the many and varied ways Congress defined "child" or assorted provisions tucked into the rules.

Swipe to scroll horizontally
Row 0 - Cell 0 Find More Tax Deductions
Row 1 - Cell 0 13 Most Overlooked Tax Deductions
Row 2 - Cell 0 QUIZ: Is It Deductible?

"One of the most egregious complexities," he groused, "is that the current Internal Revenue Code provides five major tax benefits relating to children and each has a different definition of a qualifying child." He demanded that Congress fix things and, within a couple of years, the lawmakers complied. Now there’s a single definition of "qualifying child" for all those breaks.

So, you might think it’s easy these days to know when someone qualifies as your tax dependent, which, after all, is one of the key tax breaks children bring their parents. Each child you can claim as a dependent on your 2007 tax return knocks $3,400 off your taxable income . . . saving a sweet $850 in the 25% bracket.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Think again. There are now two classes of people who can qualify as a dependent:

• qualifying children

• qualifying relatives

And get this, a qualifying child doesn’t have to be your child, and it’s possible for your own son or daughter not to be a qualifying child, but he or she might be a dependent as a qualifying relative. Oh, yeah, and someone doesn’t necessarily have to be related to you to be a qualifying relative. Check here for the basic rules . . . or take a quick tour through the following Q&As designed to clear away the confusion about who can and can not be claimed as a dependent.

Birth of a child

Q. The rules say a qualifying child must live with you for at more than half the year. My daughter was born in October. Does that mean I have to wait until next year to claim her?

A. No. The half-year test is thrown out for a child born during the year. Even a child born on December 31 qualifies as a dependent and earns the full $3,400 exemption. The same rule applies if a child dies during the year. A child who is born or dies during the year is treated as having lived with you all year long.

Living together I

Q. My girlfriend and I live together. She doesn't have a job, so I pay the rent and all the groceries. Can I claim her as my dependent?

A. Perhaps, if she passes the tests for a qualifying relative. That means you must have lived together all year long, her gross income must be less than $3,400 and you must have provided more than half of her support. One other test: your living arrangements must not violate local law. Six states (Mississippi, Virginia, West Virginia, Florida, North Dakota and Michigan), for example, have rarely-enforced laws prohibiting cohabitation, and the IRS notes that some states prohibit couples from living together if one party is married to someone else. In such a case, the IRS says, a dependency exemption would be disallowed even if the other tests are met.

Living together II

Q. My girlfriend and her two-year-old son live with me and I basically pay all the expenses. Can I claim both of them as my dependents?

A. Yes, if they pass all the tests. Did they live with you all year long? Did you provide more than half of their support? Did neither of them have gross income of $3,400 or more? If you can answer "yes" to all three questions, then you may claim both your girlfriend and her son as your dependents. (This assumes your living arrangements don't violate local law.) Until recently, in this situation, the boyfriend could not claim the child as a qualifying relative because the child was considered a qualifying child of the mother. However, the IRS now says if the parent's income is so low that he or she doesn't have to file a tax return, then the boyfriend who lives with the mother and child all year long can claim the child as a dependent.

Boomerang children I

Q. After our 28-year-old daughter's divorce, she and her two young children moved back in with me and my wife. Can we claim all three of them as dependents on our tax return?

A. The answer turns on how much money your daughter made in 2007. If she made less than $3,400 and you provided more than half of her support for the year, then she can be claimed as your dependent as a qualifying relative. The same rules apply to your grandchildren. If your daughter made more than $3,400, she doesn't qualify as your dependent, but the grandkids might, because they can be qualifying children for both you and your daughter. If your daughter agrees to let you claim the children as your dependents -- and doing so will save the family money if you're in a higher tax bracket -- then you may claim them. In that case, of course, she could not claim them.

Swipe to scroll horizontally
Row 0 - Cell 0 Find More Tax Deductions
Row 1 - Cell 0 13 Most Overlooked Tax Deductions
Row 2 - Cell 0 QUIZ: Is It Deductible?

Boomerang child II

Q. Our 25-year-old son is back home after completing his college degree. He has a pretty good job, so he makes too much for us to claim him as a dependent. That doesn't matter to us anyway, since we're stuck in the AMT where we don't get any benefit for dependent. We've heard that there's a way he can claim his 16-year-old sister as a dependent, since we all live together in the same house. Is that possible?

A. Yes, your daughter may qualify as his qualifying child as well as your qualifying child. Siblings are on the list of relatives that can be qualifying children. As long as your children lived together for more than half the year and your daughter did not supply more than half of her own support, she can be claimed as your son's dependent. Since you get no benefit for claiming your daughter as a dependent, allowing your son to do so would cut the family's overall tax bill.

Children of divorced parents

Q. My divorce was final last year, and the three kids live with me. Now my ex says that, since he's paying child support, he's going to claim them as dependents on his return. He says that means I can't claim them on mine. Is that true?

A. Not unless your divorce decree gives him that right. Since the general rule for qualifying children demands that the child live with you more than half the year, children of divorced parents are usually dependents of the custodial parent. There are exceptions. The custodial parent can release the exemption to his or her ex-spouse by signing a written declaration (Form 8332) that the noncustodial spouse must attach to the tax return each year he or she claims the children as dependents. Or, if your divorce decree gives your ex-husband the right to claim the children, he can do so if he attaches key pages of that document to his tax return. Otherwise, you get to claim the children as your dependents. If your husband claims them, too, the IRS will step in and deny his claim.

Adult child in need

Q. Our 30-year-old son has fallen on hard times. Because he lost his job, my husband and I are basically supporting him . . . paying rent on his apartment and sending him money for food. Can we claim him as a dependent?

A. Although he's too old to be your "qualifying child," he may qualify as a "qualifying relative" if he earned less than $3,400 in 2007. If that's the case and you provided more than half of his support during the year, you may claim him as a dependent.

Elderly parent

Q. My 83-year-old mother moved in with me when she could no longer live alone. Her only income is her Social Security, so she doesn't have to file a tax return. Can I claim her as my dependent?

A. Yes, assuming you provide more than half of her support, she can pass the test as a qualifying relative. Tax-free Social Security benefits don't count as gross income for the $3,400 test. When figuring that portion of her support you provide, include a value for the housing you provide. If someone else helps support your mother -- one of your brothers or sisters, for example -- and your combined support passes the 50% threshold, you may claim your mother as a dependent if you file a Form 2120, Multiple Support Agreement.

Child with scholarship

Q. My daughter won a full-ride scholarship to an expensive college. I'm thrilled, but I think the value of the tuition is more than what it costs me to feed and clothe the young scholar. If I don't provide more than half of support, do I lose her as a dependent.

A. Don't worry. First, scholarships are specifically excluded when figuring support. And remember, the test for a qualifying child is no longer that you provide more than half the support but that she does not provide more than half of her own support. You can still claim her, assuming she's under age 24.

Child of separate parents

Q. My wife and I separated at the end of September, and our 15-year-old son lived with me in October and then with his mother the rest of the year. We'll be filing married-filing-separate returns this year. Who gets to claim our son as a dependent.

A. It's up to you and your wife. You might decide that the parent who gets the biggest tax benefit (the one in the higher tax bracket) should claim the exemption. If you can't agree, however, the exemption goes to your wife because your son lived with her for more of the year than he lived with you.

Unmarried parents

Q. My boyfriend and I live together with our 3-year-old son. Since we're not married, we can't file a joint return. Which one of us gets to claim our son as a dependent?

A. It's up to you. Since he qualifies as a qualifying child for each of you, either parent may claim the child as a dependent. If you can't decide, the exemption goes to whichever of you reports the highest adjusted gross income on your separate tax return.

Child receives inheritance

Q. Our 17-year-old received a $100,000 inheritance from his uncle last year. Does that mean we can't claim him as a dependent on our 2007 return?

A. Not unless he splurged on an expensive car, lavish trip or otherwise spent a lot of the money on his on behalf. When it comes to the qualifying child tests, it doesn't matter how much money a child receives during the year (from work, a gift or inheritance). What matters is if he provides more than half of his support. Any money he saved doesn't count toward his support, so you can probably still claim him as your dependent.

Also see: basic rules for qualifying dependents

For More Tax Advice: Visit Our Tax Center

Kevin McCormally
Chief Content Officer, Kiplinger Washington Editors
McCormally retired in 2018 after more than 40 years at Kiplinger. He joined Kiplinger in 1977 as a reporter specializing in taxes, retirement, credit and other personal finance issues. He is the author and editor of many books, helped develop and improve popular tax-preparation software programs, and has written and appeared in several educational videos. In 2005, he was named Editorial Director of The Kiplinger Washington Editors, responsible for overseeing all of our publications and Web site. At the time, Editor in Chief Knight Kiplinger called McCormally "the watchdog of editorial quality, integrity and fairness in all that we do." In 2015, Kevin was named Chief Content Officer and Senior Vice President.