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Tax Talk with George Saenz

Ask the tax adviser

Disability income taxation

Dear Tax Talk:
I finally was awarded Social Security disability income after applying in 1998. My husband and I filed a 1040, and I reported the $16,000-plus that I received and know that it was taxed at 85 percent since we have over $40,000 in income.

My daughter is 7 and got $6,044 in a lump sum for 1998-2000. My daughter has no other income. I called the Internal Revenue Service and they said that my child didn't have to file a tax return and that I don't have to claim $3,022 on our 2000 return since this is my daughter's benefit! Is this correct! I am confused.
Thanks for any help,

Dear Karen:
What's probably confusing is that you are being paid her benefits since she is so young. Even though your daughter's SSDI benefits may be paid to you as her mother, it is still her income for tax purposes. Since she has no other income, she does not have a tax liability for the SSDI benefits. If you follow the IRS instructions on who has to file a return, it is not clear that she does not have to file since the instructions do not mention Social Security benefits. However, since she has no tax liability she does not have to file a return.

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To claim your child as your dependent in 2000, you would have to provide more than half of her support for 2000. The rules state that if a child receives Social Security benefits and uses them toward support, the support is considered as provided by the child and not the parent. Since you are receiving her benefits, she would probably not be considered as using them for her support, and you can continue to claim her as your dependent.

Rules on claiming dependents

Dear Tax Talk:
I am a high school teacher, and I have a student who has lived with me for the past year and a half. His uncle claims him on his taxes. In addition to providing food and shelter, I also pay for his clothes and school supplies. Can I claim him as a dependent (there is no biological relationship), or can I claim head of household -- or both?

Dear Kim:
A lot of people believe that to claim a person as your dependent that person has to be related to you by blood or adoption. You can claim as a dependent a non-relative if the person has lived with you for the entire year and you meet certain other tests (such as support and income) and the relationship does not violate local law.

It is most likely that the child would be considered your foster child for tax purposes. A foster child is one who is in your care that you care for as your own child. It does not matter how that child became a member of your household.

Since the child lives with you and you provide food, shelter, clothing and school supplies, you probably have provided more than half of the child's support. A child that is considered your foster child can have unlimited income provided that he or she is still a full-time student up to age 24.

You can claim head of household status based on the foster child relationship. The uncle would not be entitled to claim the child as a dependent since he does not maintain a home for the child. IRS Publication 501 provides additional information on claiming a child as your dependent.

For 2000, the Child Tax Credit is no longer available for a foster child relationship unless there exists a blood relationship or the child is placed with you by an authorized placement agency.


-- Posted: June 22, 2002

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