Rules for claiming dependents in nontraditional family arrangements
Bankrate.com

For many families, it's obvious who may be claimed as a dependent. But for others, extended family relationships, divorce and adoption complicate the dependent determination process.

Basically, there are five tests that a taxpayer must pass to claim someone as a dependent on an income tax return: support, gross income, citizenship, joint return and member of household or relationship.

Support test
A taxpayer must provide more than 50 percent of the support for the person they intend to claim. Support includes expenditures on food, clothing, lodging, education, medical expenses and other necessities. If two or more individuals, including yourself, provide more than 50 percent of the total support, you can claim the exemption if you contribute more than 10 percent of total support. In this case, all those who share support with you must agree that you can claim the exemption and must sign away the exemption on Form 2120, the Multiple Support Declaration. You must file this form with your tax return.

Gross income test
A dependent must have less than a certain amount of income. This amount increases annually. However, a dependent who is younger than 19 or age 23 or younger and a full-time student may exceed the earnings limit.

Citizenship test
A dependent must be a United States citizen or resident or a resident of Canada or Mexico. However, your adopted child doesn't have to be a citizen to be claimed as a dependent. As long as the child lives with you and is a member of your household for the entire year, you can claim him.

Joint return test
You can't claim a dependency exemption for someone who files a joint tax return. The only exception is for someone who files a joint return for the sole purpose of claiming a refund of income tax withholding and who wouldn't be required to file a return if he filed separately from his spouse.

Member of household or relationship test
A dependent must live in your household for the entire year, unless he is closely related to you. How does the IRS define "closely related"? The following are considered close relationships:

The IRS continues to recognize family relationships that were established by marriage, even after the marriage is ended by death or divorce. A foster child, however, is not considered a close relative and must live in the taxpayer's household for the full tax year to be claimed as a dependent.

And parents of a missing child may be able to claim that child as a dependent for filing and exemption purposes if, before the tragedy, the child qualified as a dependent and law enforcement presumes the child was kidnapped by an unrelated person.

Special rules for children of divorced parents
Special rules apply when determining the dependency status for minor children of divorced or separated parents.

The general rule for children of divorce assigns the dependent exemption to the parent who has custody of the child for the greater part of the year. Support provided by each parent is irrelevant. The most recent divorce decree or separation agreement determines custody.

What happens if there is joint physical custody or if the decree or agreement doesn't establish custody? The parent who has actual physical custody of the child for the greater portion of the year is deemed to have custody.

There is one major exception. If the custodial parent consents to give up the exemption, the noncustodial parent can claim the child. The exemption can be released for one year, several years, or all future years. The custodial parent must formally sign away the exemption on Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents. This signed form must be attached to the noncustodial parent's tax return.

In some divorces, the decree or agreement specifically allows the noncustodial parent to claim the exemption. Instead of attaching Form 8332, the noncustodial parent can attach copies of the portions of the agreement that show:

• Custodial parent's name and Social Security number;
• Statement that noncustodial parent can claim the dependent; and
• Custodial parent's signature and date

This becomes especially beneficial if a custodial parent is obligated but unwilling to sign Form 8332. The noncustodial parent can avoid a legal confrontation for something he is entitled by producing these excerpts from the divorce decree or separation agreement.

-- Updated: Jan. 15, 2003