Determination of Who Qualifies as a Dependent for Purposes of the Personal Exemption

As a taxpayer, you are allowed a personal exemption for yourself, your spouse if you file a joint return, and for any person who meets the technical definition of a dependent. The determination of who is your dependent can have important tax consequences, because the personal exemption amount is $3,650 for 2009, and $3,500 for 2008.

A “dependent” can be (i) a qualifying child or (ii) a qualifying relative.

A person cannot be considered a dependent if that person (i) filed a joint income tax return with his or her spouse (other than solely to claim a refund), or (ii) is neither a citizen or national of the United States nor a resident of the United States, Canada or Mexico.

A qualifying child is a child of the taxpayer or a descendant of the child (that is, a grandchild or great-grandchild) or a brother, sister, stepbrother or stepsister of the taxpayer or a descendant of any such relative (that is, a niece, nephew, grandniece or grandnephew). The individual must not have reached the age of 19 as of the end of the year or must be a student under the age of 24 who has not provided more than half of his or her own support. Beginning in 2009, the child must be younger than the person claiming the exemption. There are special rules if more than one person can claim the same child.

A qualifying relative is a child or a descendant of a child, a brother, sister, stepbrother, or stepsister, the father or mother, or an ancestor of either, a stepfather or stepmother, a son or daughter of a brother or sister of the taxpayer, a brother or sister of the father or mother of the taxpayer, a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

A qualifying relative must also have the same principal place of abode as the taxpayer and be a member of the taxpayer’s household for the year in question.

A qualifying relative must also meet a gross income test – that is, his gross income cannot exceed the exemption amount. Further, the taxpayer seeking to claim the exemption must have provided more than one half of the relatives support for the year.

Support generally includes the fair rental value of housing provided to the dependent, food and clothing, payments for child care, the cost of private education, medical insurance and medical care, and transportation expenses. Although support includes more than the mere necessities of life, it is often unclear whether a particular expenditure is an element of support.

Once you have determined the total amount of support received by a qualifying relative in the year in question, it is necessary to measure the amount of support contributed by the taxpayer seeking the exemption. You must contribute more than half of total support to claim the exemption. Several special rules apply.

Finally, an important exception to the rules governing personal exemptions is that anyone who may be claimed as a dependent by another taxpayer is not entitled to an exemption on his or her own tax return. For example, if you claim your daughter as your dependent, you may take an exemption for her on your tax return. If she, however, files a tax return based on her own income, she may not take a personal exemption.

As you can see, the tax laws governing the use of the personal exemption, especially where the exemption is claimed for a dependent, are very complex and fact-specific.