2018 Update: Under the 2018 tax code, for the tax returns due in April 2019, the exemption amount is Zero. Thus, there may few benefits in determining if your child qualifies as a dependent. However, the test for qualifying as a dependent may still be relevant for other reasons, for college tuition credits, the head of household definition, or even the qualification for some types of health plans. You may have to adjust your withholding to reduce you allowances and increase the amount withheld from your paycheck. Even the experts are trying to figure the new tax law.
Section 152 of the Internal Revenue Code states:
A qualifying child means an individual who:
The age requirement of part 3 can be met in any of these ways:
This solution leads to the dilemma: If the child is providing support, can the parents meet the support test to claim an exemption for the disabled adult child? The IRS provides some guidance in its Publications 17 and 501.
Recently, the IRS provided a look at how to apply the test in a tax court summary opinion, Santos v. Commissioner of Internal Revenue, T.C. Summary Opinion 2011-108. The opinion is not a precedent, and thus is not binding on any other case. The results in any situation will depend on all the individual facts there. In Santos, the taxpayer totaled her household expenses for mortgage, property taxes, food, utilities, etc, as $26,783, and thus $13,305 was deemed to be the amount of support she supplied her son. Her son, who was disabled collected $5,420 from Social Security. Since the $5,430 was less than $13,305, he did not supply half of his support, even if the court could rule whether the Social Security benefits could be treated as support he supplied, an issue the court did not decide. The court did decide in Santos that it would be unfair to include Medicaid payments as part of his support. Thus, the taxpayer was entitled to claim her son as a dependent. The court also noted a taxpayer is not precluded from being entitled to a dependency exemption simply because she is not able to prove conclusively the total cost of the child's support
The IRS provides the formula:
To figure if you provided more than half of a person's support, you must first determine the total support provided for that person. Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.
Generally, the amount of an item of support is the amount of the expense incurred in providing that item. For lodging, the amount of support is the fair rental value of the lodging.
Expenses that are not directly related to any one member of a household, such as the cost of food for the household, must be divided among the members of the household.
Lodging. If you provide a person with lodging, you are considered to provide support equal to the fair rental value of the room, apartment, house, or other shelter in which the person lives. Fair rental value includes a reasonable allowance for the use of furniture and appliances, and for heat and other utilities that are provided.
Fair rental value defined. This is the amount you could reasonably expect to receive from a stranger for the same kind of lodging. It is used instead of actual expenses such as taxes, interest, depreciation, paint, insurance, utilities, cost of furniture and appliances, etc. In some cases, fair rental value may be equal to the rent paid. If you provide the total lodging, the amount of support you provide is the fair rental value of the room the person uses, or a share of the fair rental value of the entire dwelling if the person has use of your entire home. If you do not provide the total lodging, the total fair rental value must be divided depending on how much of the total lodging you provide. If you provide only a part and the person supplies the rest, the fair rental value must be divided between both of you according to the amount each provides.
Using the formula in the Santos case can provide a good-faith estimate of whether you are providing over half your child's support such that you can claim her or him as a dependent on your tax return. Each case will be different, and Santos is not binding on the government, so always be accurate in your records and calculations.
Your child in a group home or CILAAs your child with a disability grows older, she may qualify for placement in a group home or CILA. If she moves out of your home, she will no longer pass the residency test of a dependent child since she will not live in your home more than 50% of the year, and her absence is not temporary, such as for hospitalization or education. The Internal Revenue Code does provide another way to qualify for an exemption, the Qualifying Relative. This category is more expansive than the Qualify Child test, and can include other family members or relations, including your aged parents. A child cannot be your qualifying relative if she is your "qualifying child" (see above) or the qualifying child of any other taxpayer. Since the test does not include residency in your home, you may be able to include your child or parents who have their own home.
While there are more descriptions of this exemption, this article is directed at parents of children with disabilities. Whether this exemption applies depends mainly on who is funding the placement in the group home. Query: by providing support, will you disqualify your child from public benefits? Assuming your relative meets the household or relationship test, to get the exemption, your relative must meet both the Gross Income test and the Support test.
Gross Income Test
To meet this test, which applies to qualifying relatives, a person's gross income for the year must be less than the exemption amount, which in 2017 is $4,050.
Support Test (To Be a Qualifying Relative)
figure whether you have provided more than
half of a person's total support by
comparing the amount you contributed to that
person's support with the entire amount of
support that person received from all
sources. This includes support the person
provided from his or her own funds.
noted that "payments received under Medicaid
are not necessarily included in determining
the support of a claimed dependent," another
court may not rule the same way, especially
if Medicaid is the entity paying the cost of
the group home. This question remains
To figure if
you provided more than half of a person's
support, you must first determine the total
support provided for that person.
A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test.
How will this exemption survive in 2018? Maybe not at all. If the gross income test uses an amount of $0.00, can anyone qualify as a qualifying relative? And does it matter, since the amount that the taxpayer can deduct is down to zero anyway.
Worksheet 2. Worksheet for Determining Support
This is the worksheet provided by the IRS to determine whether your dependent qualifies as an exemption.
Copyright 2018 Frank E. Stepnowski
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Introduction to deducting medical expenses
About Tax Credits
Examples: can you deduct the cost of service dogs, diapers or special diets?
Proving the Exemption for Dependents
Analyzing the Illinois Education Credit
Deducting the cost of special schools
Freedom of Information Act
Extended School Year - coming soon
About Special Needs Trusts -coming soon
Using the ADA for Parents of Children with Disabilities