Broker Check

The Rules of Claiming Dependents

Howard Hook, CFP®, CPA, quoted in The Star-Ledger's business/finance column, "Biz Brain" on March 27, 2012

Question:  I’m wondering if my wife and I can claim her mother and her sister as dependents on our 2011 tax return? We are married and filing a joint return with two children under 16 living at home. The mother, 88, and the sister, 61, live together in another home and we provide support. We did a living trust in 2007 so my wife “owns” the house they live in, and we also have power of attorney for both. The mother’s income is from Social Security ($10,224) and a small pension ($864). The sister does not work as she provides daily assistance to the mother. They both collect food stamps and a stipend from welfare. What constitutes support? Is there a standard dollar amount, or just half the total of all their bills such as property tax, electric, gas, etc.?

Answer: You and your family are in for a few tests to see if these two relatives can qualify as dependents per IRS regulations.

There are four tests in all to show someone is a “qualifying relative,” said Gerald Duerr, a certified public accountant with Duerr & Duerr in Montville:

  1. Relationship: The individual must be a member of the individual’s immediate family. Your wife’s mother and sister would count.
  2. Gross Income: The individual must have earned less than the exemption amount for the year. For 2011, that amount was $3,700, Duerr said.
  3. Support: More than half of the individual’s total support for that calendar year must have been furnished by the taxpayer.
  4. Dependency: The individual must not be a qualifying child of the taxpayer or of any other taxpayer.

“It appears from the fact pattern that you provided that both your mother-in-law and sister-in-law would count as dependents as long as you provided more than half of their support,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

There are no standard dollar amounts you would have had to provide for support, Hook said.

Going forward, make sure to protect yourselves should you claim these individuals as dependents. “You should keep a log of not only the support you provide but a log of their total expenses to show that you are providing more than half the support,” Hook said.

You also need to take a closer look at your mother-in-law’s income — that may be the one test that you fail.

“I would suggest that they discuss the gross income test with their accountant before they put her as a dependent on their joint return,” Duerr said.