Qualifying Child and Relative for Dependency

When I start writing about tax tip, I mentioned about Uniform Definition of a Child first. This was welcome news to many because the definition of a qualifying child previously varied depending on the tax benefit. This required a lot of work for tax professionals and caused confusion for taxpayers. However, the news is not good for some taxpayers who greatly impacted by the new definition.

The Working Families Tax Relief Act of 2004 includes a new uniform definition of a child (UDC). New Law redefines a qualifying child for the following 5 tax benefits.

1. Dependency exemption
2. Head of Household filing status
3. Child tax credit
4. Earned income tax credit (EITC)
5. Child and dependent care credit (I mentioned it in 01/10/2006.)

New law also creates a new tax term: Qualifying relative. The new definition of a qualifying relative applies to the following 3 tax benefits.

1. Dependency exemption
2. Head of Household filing status
3. Child and dependent care credit (I mentioned it in 01/10/2006.)

What is “qualifying child”? What is “qualifying relative’? Understanding of these terms is very important and the above tax benefits are based on them. So I explain about these terms this time.

Before we talk about qualifying child and qualifying relatives, there are 3 conditions that must be met for any individual to be claimed as a dependent.

1. Citizenship: Dependent must be either U.S. citizen or a resident of U.S., Canada, or Mexico.
2. Joint Return: Married dependent must not file a joint return.
3. Support: Dependent must not have provided > 50% of his/her own support.

Above 3 conditions are basic requirements. Now we look for each terms’ requirements.

Qualifying Child: must be met all requirements
1. Relationship:
The child must be either
*Son, Daughter, stepson, stepdaughter
*Brother, Sister, stepbrother, stepsister
*Adopted child
*Eligible foster child
*Descendant of any of the above
“Eligible” foster child means child was placed with taxpayer by authorized placement agency, by judgment, decree, by other order of any court of competent jurisdiction.

2. Residency:
The child must have lived with the taxpayer for more than half of year.
< Exceptions >
*Temporary absences: absences due to vacation, business, hospitalization, education, military services or short-term incarceration
*Kidnapped child
*Child who were born or who died during the year.

3. Age:
At the end of the year, the child must be either
*Under age 19
*Under age 24 and a full-time student full-time means at least 5 calendar months during tax year. Why 5 months? Usually school start from August. Since months from August to December count 5 months, that’s why it’s at least 5 months.
*Any age if permanent and totally disabled

Qualifying Relative: must be met all requirements

1. Relationship:
The person must be either:
*Father, Mother, Stepfather, Stepmother, Father-in-law, Mother-in-law
*Uncle, Aunt
*Brother, Sister, Stepbrother, Stepsister, Brother-in-law, Sister-in-law
*Son, Daughter, Stepson, Stepdaughter, Son-in-law, Daughter-in-law
*Eligible foster child
*Descendant of any of the above
*An individual who lived with the taxpayer the entire year
What does it mean? Is this ok for Boyfriend? Girlfriend? Or Cousin? Yeah! As long as person lived with the taxpayer all year.

2. Q.C. of Another Taxpayer
Cannot be a qualifying child of any taxpayer
For example, taxpayer lives with girlfriend and her son the entire year. Girlfriend may be a qualifying relative to taxpayer if all requirements met. However her son is not because he is qualifying child to his mom who is taxpayer’s girlfriend.

3. Support
Taxpayer provides more than half of individual’s support.

4. Gross Income
Gross income must be less than the exemption amount for that year ($3,200 for 2005)

Summary
Beginning with the 2005 tax year UDC is in place. 5 tax benefits are affected. I just mentioned about requirements for Qualifying Child and Qualifying Relative this time and I still need to mention about detail. I will write about detail next time. Right now, just remember about keywords.

Dependent requirements

3 basic conditions
1. U.S. Citizenship
2. No Joint return for married dependents
3. No > 50% of his/her own support

2 Types of Dependents: Qualifying Child and Qualifying Relative
Qualifying Child
1. Relationship: Blood, Step, Adopted, Foster
2. Residency: live > 6 months in home
3. Age: under 19, under 24 & Full-time student, Any age disabled
Qualifying Relative
1. Relationship: Blood, Step, Adopted, Foster, In-law, Uncle, Aunt, and Stranger who lived w/ you all year
2. Not be a Q.C. of another taxpayer
3. must be supported > 50%
4. Gross income < $3,200