Author Topic: Tax Question - To Claim or not to claim...that is the question? Dependent  (Read 947 times)

newton

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Hello

My daughter will turn 26 on October 30.  She is in professional school for 2 more years.  I have always claimed her.  She will need health insurance beginning October 30. 

If I claim her I assume she is not eligible for medicare?

Do the benefits of claiming her outweigh the costs?

Any help would be appreciated.

MDM

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My daughter will turn 26 on October 30.  She is in professional school for 2 more years.  I have always claimed her.  She will need health insurance beginning October 30. 
1) Did you provide more than 1/2 of her support?
2) Did she have gross income (excluding exempt income) less than $4500?
3) Did she live with you more than 1/2 the year (temporary school housing counts as living with you - having her own 12 month lease and living there, even if attending school, does not count as living with you)?

If any answer to those three questions is "no" then she is not your dependent for tax purposes.

Including her on your medical insurance is a different question.

secondcor521

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Hello

My daughter will turn 26 on October 30.  She is in professional school for 2 more years.  I have always claimed her.  She will need health insurance beginning October 30. 

If I claim her I assume she is not eligible for medicare?

Do the benefits of claiming her outweigh the costs?

Any help would be appreciated.

MDM's response is excellent, as always.

The key thing to realize is that there are rules for whether someone can be claimed, and they're usually reasonably straightforward to understand and apply.  What you should do is apply those rules to determine whether or not to claim her; you should not base the claiming decision on which results in a better outcome.

Since she is 26, I don't believe she is eligible for Medicare, which starts at age 65.  If you mean Medicaid - which you probably do - then whether she is eligible depends on multiple things.  First would be to determine whether or not she is your dependent - if she is, then she's probably not eligible unless you're also eligible.  Second, if she's not a dependent, then it depends on her income, her state of residency, and possibly some other things depending on whether she lives in a Medicaid-expansion state or not.

It's tricky to figure out the best thing to do.  I'm in somewhat similar shoes with three offspring who may or may not be my dependents in any given year depending on the facts and circumstances.  Especially with health insurance and family size and income levels for ACA (ACA subsidies depend on family size which in turn depends on whether offspring are dependents or not).  In addition to healthcare and healthcare subsidies, it can affect filing status (I file single or HOH depending on dependent status) which affects tax brackets.  Also of note is this year, young adults like your DD would probably qualify for the $1200 corona virus tax credit on her upcoming tax return, but only if she is not claimed as a dependent on your return.

MDM

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My daughter will turn 26 on October 30.  ...  She will need health insurance beginning October 30. 
If
- she is being covered by (presumably your) health insurance, and
- that insurance is an HSA-eligible HDHP, and she has no other coverage, and
- she cannnot be claimed as a dependent on someone else’s tax return,
then she may contribute the family maximum to her own HSA.

If the above applies for 2019, she has until July 15, 2020 to make her 2019 HSA contribution.
If it applies for 2020, she will be able to make 10/12 of the family maximum, with an April 15, 2021 deadline.

newton

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My daughter will turn 26 on October 30.  She is in professional school for 2 more years.  I have always claimed her.  She will need health insurance beginning October 30. 
1) Did you provide more than 1/2 of her support?
2) Did she have gross income (excluding exempt income) less than $4500?
3) Did she live with you more than 1/2 the year (temporary school housing counts as living with you - having her own 12 month lease and living there, even if attending school, does not count as living with you)?

If any answer to those three questions is "no" then she is not your dependent for tax purposes.

Including her on your medical insurance is a different question.

Thanks!

Yes for #3 - So I guess I "can" claim for this year (2020) and it will be the last year I can do so.

I appreciate it.

newton

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Hello

My daughter will turn 26 on October 30.  She is in professional school for 2 more years.  I have always claimed her.  She will need health insurance beginning October 30. 

If I claim her I assume she is not eligible for medicare?

Do the benefits of claiming her outweigh the costs?

Any help would be appreciated.

MDM's response is excellent, as always.

The key thing to realize is that there are rules for whether someone can be claimed, and they're usually reasonably straightforward to understand and apply.  What you should do is apply those rules to determine whether or not to claim her; you should not base the claiming decision on which results in a better outcome.

Since she is 26, I don't believe she is eligible for Medicare, which starts at age 65.  If you mean Medicaid - which you probably do - then whether she is eligible depends on multiple things.  First would be to determine whether or not she is your dependent - if she is, then she's probably not eligible unless you're also eligible.  Second, if she's not a dependent, then it depends on her income, her state of residency, and possibly some other things depending on whether she lives in a Medicaid-expansion state or not.

It's tricky to figure out the best thing to do.  I'm in somewhat similar shoes with three offspring who may or may not be my dependents in any given year depending on the facts and circumstances.  Especially with health insurance and family size and income levels for ACA (ACA subsidies depend on family size which in turn depends on whether offspring are dependents or not).  In addition to healthcare and healthcare subsidies, it can affect filing status (I file single or HOH depending on dependent status) which affects tax brackets.  Also of note is this year, young adults like your DD would probably qualify for the $1200 corona virus tax credit on her upcoming tax return, but only if she is not claimed as a dependent on your return.

Thanks for the response.  I did mean medicaid :)  I apologize.  I claimed her on last year's return so she was not eligible for the $1200 or the $500.

I appreciate it!

MDM

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If any answer to those three questions is "no" then she is not your dependent for tax purposes.
Yes for #3 - So I guess I "can" claim for this year (2020) and it will be the last year I can do so.
Needs to be yes for #1 and #2 also.

newton

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If any answer to those three questions is "no" then she is not your dependent for tax purposes.
Yes for #3 - So I guess I "can" claim for this year (2020) and it will be the last year I can do so.
Needs to be yes for #1 and #2 also.

Ok, got it, thanks.  yes, it is a "yes" to #1 and #2.

Thanks again for the help!

phildonnia

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There is a persistent misunderstanding that you can choose whether someone is an eligible dependent.  This has become especially relevant lately as people consider horse-trading dependent status with other taxpayers to collect a greater COVID-19 stimulus payment. 

I think MDM was hinting at this: There is no election or negotiation of dependent status for tax purposes.  You either can or cannot be considered a dependent, according to objective rules. If you can claim someone else as a dependent, and don't, then your filing is incorrect and you didn't get a standard deduction that you were entitled to.  If you can be considered a dependent, and don't file that way, then your filing is incorrect, and possibly fraudulent.   

MDM

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If you can claim someone else as a dependent, and don't, then your filing is incorrect and you didn't get a standard deduction that you were entitled to.
Yes, incorrect in the sense that you may be leaving benefits on the table, but you are allowed to do so. 
Quote
If you can be considered a dependent, and don't file that way, then your filing is incorrect, and possibly fraudulent.
Yes, incorrect as in against the law.