Reader Bill asked me if it’s possible to list his parents as dependents on his tax return. Bill’s parents are foreign citizens. They came to visit him and lived with him for eight months last year.
We are all familiar with children as dependents. Can parents also be dependents for tax purposes?
I consulted my favorite tax book. I see Bill and his parents will have to meet several requirements before Bill can claim his parents as dependents on his tax return.
Citizenship or Residency
A dependent must be a U.S. citizen or resident alien or a resident of Canada or Mexico. Immigrants who send money home to support their family elsewhere can’t claim their family as dependents when the family members are not U.S. citizens or residents.
Bill’s parents are foreign citizens. For them to be U.S. residents, they must either have Green Cards or be physically present in the U.S. for 183 days or more. The 183 days are counted as 100% of the days in the current year, plus 1/3 of the days in the previous year, plus 1/6 of the days two years ago.
Because Bill’s parents lived with him for eight months, which is more than 183 days, they meet the residency requirement.
Social Security Number or Tax Identification Number
Form 1040 requires a Social Security number or tax identification number for each dependent.
If Bill’s parents don’t have a Social Security number, they can apply for an Individual Tax Identification Number (ITIN) with a W-7 Form.
This is perhaps the toughest requirement. A “qualifying relative” dependent can’t have $3,700 or more in gross income in the tax year. This number is as of 2011 and it’s per parent. It’s adjusted for inflation each year.
U.S. residents are taxed on worldwide income. The parents’ income from their home country also counts toward the $3,700 number. Although not relevant to Bill’s parents, non-taxable income, for example Social Security or tax-exempt interest, doesn’t count.
If Bill’s parents don’t have that much income, they meet the income requirement for being a dependent. When their income is that low, they also don’t have to file a U.S. tax return themselves.
A “qualifying relative” isn’t limited to a parent. It can also be a sibling, a grandparent, a niece or nephew, or some in-laws (parent in-law, brother or sister in-law, son or daughter in-law).
Bill’s parents meet the relationship requirement.
The person claiming the dependent must provide more than 50% of the dependent’s support during the tax year. The 50% number can be shared among several people (say siblings) if other support providers vow not to claim the same person as a dependent.
Providing food and shelter for eight months is providing support. Unless his parents paid their own support somehow, Bill meets the support requirement.
If all the requirements are met, each dependent will give Bill a $3,700 tax exemption, which is similar to a tax deduction. For two parents, that’s $7,400. At a marginal rate of 30% (federal and state), the extra exemption is worth about $2,200. It’s definitely worth it to claim the parents as dependents if they satisfy all the requirements.
Reference: IRS Publication 501