Print

Email story

Comment

Letter to the editor

Counting dependents in non-traditional familes

By HELEN HUNTLEY
Published February 17, 2008

Dependents are worth lots of money at tax time, but in today's world of nontraditional families and unmarried relationships, who gets to claim whom can become pretty murky.

The IRS recently ruled that people who are supporting the children of their live-in partners can claim them as dependents when the children's own parents do not.

Consider the hypothetical case of Sarah Smith and her children from a prior relationship who moved in with Joe Jones. In the past, Joe could not claim dependency exemptions for the children even if he provided all of their support and Sarah had no income. If Sarah's income was too small to benefit from the children's exemptions, no one got to use them.

The new rule: Joe can take the children's exemptions on his return as long as Sarah is not required to file an income tax return or files one only to get a refund of withheld taxes. The other qualifications: The children must have lived with Joe all year, more than half of their support must have come from Joe and each child's income must have been less than $3,400.

Joe is even eligible to amend his 2005 and 2006 returns to claim the exemptions if the children were living with him then.

There is a hitch: Although Joe gets the exemptions, he cannot get the child tax credit, the Earned Income Credit, the $300-per-child tax rebate or claim head of household status based on the children because they are not legally related to him. And if Joe lives in Florida, he can't claim Sarah as a dependent because their relationship is illegal under state law.

Here are a couple of other issues related to dependents:

This is a pretty typical situation. If a child is under 19 or a full-time student under 24, a parent who provides more than half of the child's support can claim the child as a dependent, regardless of the child's income. Children who don't meet those criteria can be claimed only if their income is less than $3,400.

However, if this parent claims the child as a dependent, it will cost the child $340 in additional taxes. That's because each exemption subtracts $3,400 from taxable income and he's in the 10 percent tax bracket. In addition, the child will lose out on the $300 rebate if he is claimed as a dependent on the parent's return. The parent cannot get the rebate because the child is older than 16.

Question: I want to claim my brother as a dependent, but he owes back child support. If I claim him on my 2007 tax return, will the IRS take my refund due to the money he owes for child support?

I get many variations on this question. The IRS will not withhold your refund based on money owed by one of your dependents. However, this person cannot claim his brother unless he provided more than half of the brother's support and the brother's 2007 income was less than $3,400. Note that if someone lives with you, the food and lodging you provide are considered support.

On the other hand, if your spouse owes the IRS or owes another debt the IRS collects, such as child support, and you file a joint return, it is likely that your refund will be withheld. You can file Form 8379 claiming "injured spouse" status if you think that's inequitable.

[Last modified February 15, 2008, 18:23:42]