The term qualifying relative is a crucial concept in the context of tax deductions and credits, especially for taxpayers looking to optimize their financial standing when filing their taxes. The Internal Revenue Service (IRS) provides clear guidelines on who can be categorized as a qualifying relative, including specific eligibility requirements and the implications of claiming such a relative on your taxes.
What Is a Qualifying Relative?
A qualifying relative is an individual who can be claimed as a dependent on a taxpayer's tax return, provided that the taxpayer has significantly supported the relative financially during the tax year. It is essential to note that while qualifying relatives can lead to various tax benefits, the Tax Cuts and Jobs Act has temporarily suspended the deduction for qualifying relative exemptions for tax years ranging from 2018 to 2025.
Key Points to Remember
- Qualifying Relatives vs. Qualifying Children: A qualifying relative differs significantly from a qualifying child. Only one of these designations can apply to a dependent.
- Financial Support Requirement: To qualify as a dependent, the taxpayer must have contributed over 50% of the relative's total support for the year.
- Income Limitations: A qualifying relative's gross income must be less than $4,400 for them to be eligible for dependency claims.
- Tax Credits: Even without the exemption deduction, qualifying relatives can enable taxpayers to access various tax credits such as the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit.
Understanding Qualifying Relatives
To classify someone as a qualifying relative, the taxpayer must navigate through several IRS guidelines to ensure they meet specific criteria outlined in IRS Publication 501.
IRS Qualifying Relative Tests
To successfully claim someone as a qualifying relative, they must meet the following criteria:
- Non-Qualifying Child: The individual cannot be a qualifying child of the taxpayer or any other individual.
- Living Situations: The qualifying relative must reside in the taxpayer’s household for the entire year or be closely related (e.g., parent, sibling, grandparent, niece/nephew).
- Income Requirement: The total gross income of the qualifying relative must be less than $4,400 for the tax year.
- Support Test: The taxpayer must provide more than half of the qualifying relative's financial support during the year.
- USA Residency: The dependent must be a U.S. citizen, national, resident alien, or a resident of Canada or Mexico.
It is essential to note that if an individual lives with the taxpayer for the entire year, even if they are not related, they can still be claimed as a qualifying relative.
Examples of Qualifying Relatives
- Siblings or step-siblings
- Parents who live with the taxpayer
- Grandparents, aunts, or uncles
- Anyone who lives with the taxpayer all year and does not claim their own dependents.
Differences Between Qualifying Child and Qualifying Relative
Often, a taxpayer may find themselves questioning whether a dependent falls under the qualifying child category or the qualifying relative category. Here are the differences:
- Age and Relationship: A qualifying child must be the taxpayer's biological, adopted child, stepchild, or foster child and must be under 19 years of age or a full-time student under 24. In contrast, a qualifying relative can be older and does not need to fit these age requirements.
- Dependency Status: A child can still be claimed as a dependent even if they provide more than half of their own support, unlike qualifying relatives who must meet specific support and income criteria.
Earned Income Tax Credit (EITC) Eligibility
It is important to clarify that a person classified solely as a qualifying relative cannot be claimed for the Earned Income Tax Credit. For EITC eligibility, a dependent must be a qualifying child, which includes specific familial ties to the taxpayer.
Conclusion
In summary, understanding what constitutes a qualifying relative is vital for taxpayers looking to benefit from potential deductions and credits. While the Tax Cuts and Jobs Act has temporarily suspended the exemption deductions for qualifying relatives, taxpayers may still claim significant tax benefits based on their support and caregiving responsibilities.
Before claiming a relative, carefully assess their income, your financial contributions, and ensure you meet the IRS qualifications to optimize your tax claims. For more detailed scenarios and guidance, consult the IRS Publication 501 or a tax professional to help navigate your obligations and opportunities during tax season.