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Section 151(a) entitles a taxpayer who is an “individual” to a deduction of an “exemption amount” for each “dependent,” § 151(c). In addition, a taxpayer who files “married filing jointly” may claim a deduction of the exemption amount for both himself/herself and his/her spouse. Reg. § 1.151-1(b) (third sentence, two exemptions allowed). A taxpayer who is married but does not file a joint return may claim a deduction of the exemption amount for a spouse who has no gross income and is not the dependent of another taxpayer, § 151(b). The “exemption amount” is a fixed amount per dependent, see § 151(d)(1), indexed for inflation, § 151(d)(4). A taxpayer may not deduct an “exemption amount” for any person for whom a dependency deduction is allowable to another taxpayer, § 151(d)(2).
Section 152 defines “dependent.”
- A dependent may not claim another as a dependent. § 152(b)(1).
- A spouse who files a joint return cannot be the dependent of another taxpayer. § 152(b)(2).
- A dependent must be a citizen, national, resident of the United States, or resident of a country contiguous with the United States. § 152(b)(3)(A). This limitation does not apply to an adopted child who has the same principal place of abode as a taxpayer and is a member of the taxpayer’s household, provided that the taxpayer is a citizen or national of the United States. § 152(b)(3)(B).
- A “dependent” must be either a “qualifying child” or a “qualifying relative.” § 152(a).
Qualifying Child: A “qualifying child” is an individual who meets certain requirements of relationship, place of abode, age, support, and filing status. § 152(c)(1).
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Relationship: A “qualifying child” can be –
- a child of the taxpayer, § 152(c)(1), i.e., son, daughter, stepson, stepdaughter, or a foster child placed by an authorized placement agency or under court order (§152(f)(1)(A and C)) or a descendant of such an individual, § 152(c)(2)(A). Taxpayer’s legal adoption of a son, daughter, stepson, or stepdaughter renders a person a child of the taxpayer by blood. § 152(f)(1)(B).
- a brother, sister, stepbrother, or stepsister or a descendant of any such relative. § 152(c)(2)(B). This includes a half-brother or half-sister. § 152(f)(4).
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Abode: A “qualifying child” must have “the same principal place of abode as the taxpayer for more than one-half” of the year. § 152(c)(1)(B).
- There are special rules when the “qualifying child” is the child of divorced parents. If the “qualifying child” receives over one-half of his/her support during the year from his/her
parents (including as a parent’s contribution the contribution of a new spouse, § 152(e)(6)) who either –
- are divorced, § 152(e)(1)(A)(i),
- are separated under a written separation agreement, § 152(e)(1)(A)(ii), or.
- live apart for all of the last six months of the calendar year, § 152(e)(1)(A)(iii),
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and the child is in the custody of one or both of the parents for more than one-half of the calendar year, then the custodial parent (i.e., the parent having custody for the
greater portion of the calendar year, § 152(e)(4)(A)), may claim the child as a dependent, unless
- The custodial parent executes a Form 8332 by which the custodial parent declares that he/she will not claim the child as a dependent, § 152(e)(2)(A), and
- The noncustodial parent attaches Form 8332 to his/her tax return. § 152(e)(2)(B).
- These special rules for divorced parents do not apply to any case where the child received over one-half of his/her support under a so-called “multiple support agreement.” § 152(e)(5).
- There are special rules when the “qualifying child” is the child of divorced parents. If the “qualifying child” receives over one-half of his/her support during the year from his/her
parents (including as a parent’s contribution the contribution of a new spouse, § 152(e)(6)) who either –
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Age: A “qualifying child” must be younger than the taxpayer (§ 152(c)(3)(A)) and –
- not yet 19 years old, § 152(c)(3)(i), unless
- the individual is permanently and totally disabled at any time during the year, § 152(c)(3)(B), or
- the child is a student who is not yet 24 years old, § 152(c)(3)(A)(ii). A “student” who is an individual who is a full-time student at an educational institution or is pursuing a full-time course of institutional on-farm training. § 152(f)(2).
- not yet 19 years old, § 152(c)(3)(i), unless
- Support: A “qualifying child” is one who did not provide more than one-half of his/her own support. § 152(c)(1)(D). Scholarships are not taken into account. § 152(f)(5).
- Filing status: A “qualifying child” may not file a joint return other than for the purpose of claiming a refund with his/her spouse. § 152(c)(1)(E).
It can happen that two or more persons can claim the same “qualifying child” as a dependent. In such a case, the “qualifying child” is treated as the “qualifying child” of –
- a parent, § 152(c)(4)(A)(i):
- In the event that more than one parent can claim the “qualifying child” and the parents do not file a joint return, § 152(c)(4)(B), the child is the “qualifying child” of –
- the parent with whom the child resided the longest during the taxable year, § 152(c)(4)(B)(i), or
- if the child resided with each parent an equal amount of time, the parent with the highest adjusted gross income. § 152(c)(4)(B)(ii).
- In the event the child is a “qualifying child” with respect to a parent but no parent claims the “qualifying child”, another taxpayer may claim the child as a dependent if that taxpayer’s adjusted gross income is higher than the highest adjusted gross income of a parent. § 152(c)(4)(C).
- In the event that more than one parent can claim the “qualifying child” and the parents do not file a joint return, § 152(c)(4)(B), the child is the “qualifying child” of –
- If the child is not a “qualifying” child as to a parent, the taxpayer with the highest adjusted gross income for whom the individual is a “qualifying child” may claim the child as a dependent. § 152(c)(4)(A)(ii).
Qualifying Relative: A “qualifying relative” is an individual who meets certain requirements of relationship, gross income, support, and status.
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Relationship: A “qualifying relative” with respect to the taxpayer may be –
- a child or descendant of a child, § 152(d)(2)(A), i.e., son, daughter, stepson, stepdaughter, or a foster child placed by an authorized placement agency or under court order (§152(f)(1)(A and C)) or a descendant of such an individual, § 152(c)(2)(A). Taxpayer’s legal adoption of a son, daughter, stepson, or stepdaughter renders such a person a child of the taxpayer by blood. § 152(f)(1)(B);
- a brother, sister, stepbrother, or stepsister. 152(d)(2)(B). This includes a half-brother or half-sister. § 152(f)(4);
- a father or mother or ancestor of a father or mother; § 152(d)(2)(C);
- a stepfather or stepmother, § 152(d)(2)(D);
- a son or daughter of a brother or sister (i.e., nephew or niece), § 152(d)(2)(E);
- a brother or sister of the father or mother (i.e., uncle or aunt), § 152(d)(2)(F);
- a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, § 152(d)(2)(G);
- an individual other than one who was at any time during the taxable year a spouse who for the taxable year has the same principal place of abode as the taxpayer and is a member of the
taxpayer’s household. § 152(d)(2)(H).
- An individual is not a member of taxpayer’s household if at any time during the taxable year the relationship between the individual and the taxpayer is in violation of local law. § 152(f)(3).
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Gross Income: The gross income of a “qualifying relative” may not be equal to or more than the exemption amount. § 152(d)(1)(B).
- The gross income of a permanently and totally disabled individual does not include income attributable to services rendered at a charitable institution that provides special instruction or training designed to alleviate the disability, § 152(d)(4)(B), and the individual’s principal reason for his/her presence there is the availability of medical care and the income arises only from activities at the institution incident to such medical care, § 152(d)(4)(A). § 152(d)(4).
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Support: Taxpayer must provide over one-half of the individual’s support for the calendar year. § 152(d)(1)(C).
- An alimony payment that the recipient includes in his/her gross income is not counted as payment for support of a dependent. § 152(d)(5).
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Multiple Support Agreements: If there is no taxpayer who contributed over one-half of an individual’s support, § 152(d)(3)(A),
- a taxpayer for whom the individual would otherwise have been a “qualifying individual,” § 152(d)(3)(B), and
- who contributed more than 10% of the individual’s support, § 152(d)(3)(C),
- may claim the individual as a dependent provided that all others who contributed more than 10% of the individual’s support file a declaration that they will not claim the individual as a dependent, § 152(d)(3)(D).
- The rules governing treatment of an individual whose parents are divorced that govern the individual’s abode apply as well to determinations between the parents with respect to support. § 152(e)(1).
- Status: A “qualifying relative” may not be a “qualifying child” of the taxpayer or of any other taxpayer. § 152(d)(1)(D).
Do the CALI Lesson Basic Federal Income Taxation: Taxable Income and Tax Computation: Personal and Dependency Exemptions
- Information for Question 10: This lesson applies the law of 2008. The exemption amount in 2008 was $3500 per exemption. The phaseout of exemptions for taxpayers married filing jointly began at an AGI level of $239,950.
- Information for Question 11 The phaseout of § 68 is actually the return of a phaseout that existed prior to 2006. In tax years before 2006, the phaseout was what it is now. For tax years 2006 to 2009, Congress phased out the phaseout. First, there was a reduction of ⅓ of the phaseout and then ⅔ of the phaseout. Your answer to Question 11 should be A.
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