Tax Rules for Claiming Adult Dependents
An Adult Dependent Must Meet Several Tests
A taxpayer’s dependents don’t necessarily have to be children. Adults can qualify, too, subject to meeting a lot of rules. Beginning in 2018, the value of this tax provision will be somewhat less than it's been in previous years, however.
Dependents and the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act takes away the personal exemptions you could once claim for yourself and each of your dependents—$4,050 per person off your taxable income as of 2017. They're slated to return in tax year 2026, however.
In the meantime, you can still benefit from claiming dependents to some degree because having them can make you eligible for other tax perks, including the advantageous head of household filing status and the Child and Dependent Care Tax Credit. And the TCJA adds a new tax credit for non-child dependents from 2018 through 2025.
Some of these credits alter the exact requirements for dependents somewhat, but these overall rules typically apply.
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" instead.
All these related individuals can be your dependents without actually living with you, but other unrelated adults must reside in your home. If you file a joint return with your spouse, the relationship can be with either of you.
Your relationship with an unrelated dependent can’t be against the law in your state. You might live with your girlfriend and meet all the other rules, but if she’s married to someone else, your living arrangement might be considered illegal. You couldn’t claim her as a dependent as a result.
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 2017 so you can expect that it will be at least this much in 2018 even though personal exemptions have been temporarily eliminated from the tax code.
You must look at your potential dependent's 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 that your 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.
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.
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.
Multiple Support Agreements
The support that your would-be dependent receives from others counts, too. Maybe you have two 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 the consent of the other 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
If your dependent must file a tax return, he can’t claim a personal exemption for himself in 2017 when personal exemptions are still available. 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 of overpaid taxes.
He must be a U.S. citizen, a resident alien, or a 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.