Tax Rules for Claiming Adult Dependents
An Adult Dependent Must Meet Several Tests
Many of us have jokingly said at some point in our lives that we wished we could claim a relative, friend or adult child as a dependent. We’re usually talking about that one individual who seems to drain cash from us at an alarming rate. We might love him, but loving him costs us a bit.
The Internal Revenue Service might — just might — commiserate with you and cut you a tax break. In fact, that person really might qualify as your dependent.
A taxpayer’s dependents don’t necessarily have to be children. Adults can qualify, too, subject to meeting a whole host of rules.
The Relationship Rule
First, you must have a qualifying relationship with your would-be dependent. He’s either a close relative or he lives with you.
Qualifying relatives include siblings, half-siblings, and step-siblings. They also include your parents, stepparents, grandparents and even great-grandparents. Nieces, nephews, aunts and uncles can all be your dependents, and your in-laws are covered by this rule, too. In-laws don’t lose their potential status as your dependents if your spouse dies or you divorce.
Your adult son or daughter might also qualify as your dependent if you continue to support him — he’s just no longer your “qualifying child.” He becomes a “qualifying relative.”
All these related individuals can be your dependents without actually living with you.
If you file a joint return with your spouse, the relationship can be with either of you. But other unrelated adults must reside in your home.
Your girlfriend would qualify under this rule if she lived with you throughout the entire tax year. “Throughout” isn’t quite meant literally. She’s permitted to leave for periods of time, such as to go to school or to spend time in a hospital or a rehab facility.
She’s allowed to go on vacation. She just can’t take up her own residence anywhere else or live with someone else full time.
Your relationship with an unrelated dependent can’t be against the law in your state. You might live with your girlfriend and meet all other rules, but if she’s married to someone else, your living arrangement may be considered illegal in some jurisdictions. You couldn’t claim her as a dependent as a result.
You’ll notice that your spouse doesn’t appear anywhere on this list. That’s because you can’t claim a spouse as a dependent.
The Income Rule
There must also be a good reason why your would-be dependent is costing you so much money, namely that he earns very little money of his own. His total taxable income from all sources must be less than the personal exemption for the year in which you want to claim him. That’s $4,050 for 2016 and 2017, although this number is adjusted periodically so it may go up in future years.
You must look at his gross income — what he earned before taxes — and it includes unemployment compensation, although not Social Security income that’s not taxed.
The Support Rule
Even assuming your potential dependent meets the income rule, what he does with his money also matters.
The support rule requires that you provide at least 51 percent of his support.
Let’s assume your brother earned $4,000 so he comes in just under the wire on the income test. He rents a room in someone’s home and his entire monthly living expenses are $500, or $6,000 a year. He uses his entire income to pay these expenses and you kick in the $2,000 balance. He’s not your dependent. He can’t qualify even though he’s a relative who doesn’t have to live with you and even though he earns less than the personal exemption for the year because you’ve only contributed one-third to his support. You must contribute more than half.
If you change the numbers, however, it works. If his monthly living expenses are $1,000 a month or $12,000 a year, and if he contributes the entirety of his $4,000 income and you pay the rest, your contribution comes out to $8,000 a year, more than half.
So far, so good. He still qualifies as your dependent.
What if he lives with you? Now you have to do a little math. You must figure out what portion of your monthly household expenses are attributable to him. If you rented his bedroom out, how much could you reasonably expect to receive for that space? This is its fair rental value and you can count it as your contribution to his support. If you’re married and have two children, his share of your monthly grocery bill is 20 percent — he’s the fifth mouth to feed. This counts as your contribution, too.
Keep receipts for other expenses you pay for directly on his behalf. In addition to lodging and groceries, expenses that count as support under the IRS rule include medical care, dental care, transportation, clothing, and education.
An important distinction here is that this rule is not based on your potential dependent’s income, but rather on how much of that income he actually dedicates to paying for his own support. So if he gives you any cash toward his “rent” and groceries, you must calculate this in.
Multiple Support Agreements
Support that your would-be dependent receives from others counts, too. Maybe you have two other siblings and they both kick in some money every month to help the brother who’s down on his luck. Your personal contribution must still be 51 percent or more unless they sign something called a Multiple Support Agreement letting you claim him as a dependent anyway.
A Multiple Support Agreement often comes into play when siblings are pooling their money together to support elderly parents. The agreement simply states that the others consent to not claim the individual in question as a dependent. You must still contribute a minimum of 10 percent to his support, but this is considerably less than the 51-percent rule.
A Few Other Rules
Unfortunately, we’re not quite done yet.
If your dependent must file a tax return, he can’t claim a personal exemption for himself. This only makes sense because you’re claiming a personal exemption for him. Allowing him to do so, too, would be a double-dip.
If your potential dependent happens to be married, he can’t file a joint return with his spouse unless the sole purpose of filing the return is to claim a refund for overpaid taxes.
He must be a U.S. citizen, resident alien or national. He must have a Social Security number that you can list on your tax return. Special rules exist for dependents who live in Mexico or Canada for part of the year. Consult a tax professional if your dependent falls into this last narrow demographic.
So there you have it. If your down-on-his-luck friend or relative meets all these rules, you have yourself a dependent when you file your tax return.