Has your adult child boomeranged back to the nest and having trouble finding work? Are you helping out your parents or other people financially?
You may be able to claim them as dependents on your tax return and/or deduct the medical expenses you pay for them.
Read on to learn more.
Michelle Morris, CFP®, EA
BRIO Financial Planning
Recently I helped two clients amend prior year taxes to claim two adult children as dependents in one case and an elderly father in another case. The combined savings was thousands. These scenarios are increasingly common and many people aren’t aware of the dependent rules or that claiming someone other than your minor/college age child is even possible.
Like much of the IRS code the rules are somewhat byzantine.
Four Tests must be met to claim someone as a dependent on your taxes:
1) The person is Not a Qualifying Child Test.
- Basically this means you are not claiming your child in the “usual” way which is a child under age 19 or a student under age 24. There is no age requirement for this test.
2) Member of Household or Relationship Test
- The person must either live with you all year as a member of your household OR be related to you. (See “Relatives who don’t have to live with you” in Publication 17)
3) Gross Income Test
- To meet this test the person’s gross income for the year must be less than $4,050.
- Gross income is all income that isn’t exempt from tax.
- Social Security benefits are not included unless the benefits are taxable. If the person’s other income is less than $4,050 then the Social Security is not taxable.
4) Support Test
- To meet this test, you must provide more than half of the person’s total support during the calendar year. Total support includes amount spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities. For lodging the amount of support is the fair rental value of the lodging.
If someone meets all 4 of these tests you can claim them as a dependent on your tax return. If you paid medical expenses for this person you can deduct those if you itemize deductions.
You can also deduct the medical expenses you pay for anyone who would have been your dependent but they failed test #3, the gross income test.
If you could have claimed someone as a dependent in a prior year, you can still amend open tax years which are 2014, 2015, and 2016. 2013 is also open if you happened to file an extension that year. (This information is correct as of this writing in May 2017)
Confusing? Of course, it’s the Federal Tax Code! But it could be worth pursuing.