Claiming a dependent on your income tax return is one of the many ways to pare your tax liability. Dependents typically are children under the taxpayer's care. However, you can also claim as dependents disabled relatives and adults under your care, when you pay the majority of expenses. Of course, as with all things involving taxes, there are many rules and exceptions.
The dependent must earn less than $3,800 in taxable income. The good news is that Social Security checks are normally excluded. Thus, if the disabled person is drawing Social Security disability checks, this income does not count toward the taxable income. However, IRAs, stocks, interest from savings accounts and other sources of income must be considered and will usually count toward the $3,800 total.
After deciding that the disabled person meets the income requirements, you must also quantify the level of support you directly provide. Your support must account for over half the person's living expenses. Consider fair market rent value of the person's room, food, medical expenses and other incidental living expenses. If you are paying more than half the cost of these items, you qualify. However, if the disabled person is using any income, even exempt income like Social Security, to reimburse you for these things or pay them outright, you must consider this in calculating your share of the person's expenses.
Even if the disabled person does not qualify as a dependent due to excessive income or because you do not cover enough expenses, the person can still qualify as a dependent if you cover more than 7.5 percent of the medical expenses. Don't forget to count the cost of any supplemental insurance policies you may have that cover the disabled person. You can count some, but not all, the costs of these policies toward your total medical expenses. There are also ceilings on the amount you can count, and they change from year to year, so be sure to check with your tax adviser when you file.
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