Question

Steven and Chelsea Smith are married and have one daughter, Kristen, who is 22. Kristen is a full-time student at a public university located in a different state. Kristen earns $16,000 a year working several part-time jobs which she puts entirely toward her living expenses; Steven and Chelsea pay a portion of Kristen's rent, food, and utility bills, $4,000 in total. Chelsea's father, Bill, is 85 years old and lives in an assisted living facility. Despite the fact that Bill receives $6,700 in tax-exempt interest from State of Utah bonds and $2,600 of taxable dividends from Blue Trails, Inc., the Smiths provide more than half of Bill's support because his medical expenses are substantial. Do both Kristen and Bill qualify as dependents

Answer 1

Solution

The following are the rules for qualifying as a "dependents" under Income tax Act.

Qualifying Child

• The child should be the son or daughter of the Tax payee
• The child should be under the age of 19 years (or) a full time student under the age of 24 years
• The child should live with the Tax payee at least for the period of half of the year
• The child may have a job but that job cannot provide more than half of her support
• The tax payee only should claim the amount and any one of the relative of the tax payee

Kristen does not qualify as "dependents" as she does not meet the following requirement of Income tax rule.

• Kristen's part time job is able to support more than half of her support (needs). The total expenses of Kristen for a month works out to $ 20000. Out of such expenses, her father (Tax payee) helps Kristen by paying $ 4000. The remaining $ 16000 is managed by Kristen of her own which is more than half of her support. In the context of the income tax rule, the job could be a full time or part time job.

Qualifying Relative

• The relative should live with the Tax payee in his residence all the days in a year
• The relative should not earn more than $ 4200 a year
• The tax payee support more that half of the relative's total support

Bill does not qualify as "dependents" as he does not meet the following conditions.

• Bill earns $ 9300 which is more than $ 4200 that is being set for qualifying as a dependent. Therefore Bill does not qualify to be a "dependent relative" of the Tax payee in spite of the fact that Bill meets all other requirements.