Tax Act Creates Uniform Definition of a Qualifying Child

By Mark H. Levin

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DECEMBER 2005 - Over the years, many tax provisions added to the IRC have dealt with children, such as the dependency exemption, the child credit, the dependent care credit, and head of household status. Most of these provisions differ in their definitions of what constitutes a qualifying child. These differing definitions have caused confusion for taxpayers, because a child may be a qualifying child for some provisions but not for others. The Working Families Tax Relief Act of 2004 (WFTRA) goes a long way in remedying this confusion by enacting a uniform definition of a qualifying child.

For tax years beginning after December 31, 2004, section 201 of the WFTRA establishes a uniform definition of a qualifying child for the purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit, and the head of household status. In creating a uniform definition of a qualifying child, the WFTRA sets forth three tests: a residency test, a relationship test, and an age test. In the event that more than one taxpayer claims the child as a qualifying child, the new law establishes a tiebreaker test. While there is now a basic uniform definition of a qualifying child, the act does not change other requirements to claim one or more of the four benefits—for example, the earned income requirement of the earned income credit. In addition, under WFTRA section 201, adding IRC section 152, taxpayers may still claim individuals as dependents even if they do not meet the new criteria as long as they meet the requirements under prior law.

Residency Test

The residency test requires that the child have the same residence as the taxpayer for more than one-half of the taxable year. The temporary absence due to special circumstance exceptions of pre-WFTRA law, for absences due to illness, education, business, vacation, or military service, will still not be treated as absences for purposes of the residency test.

Relationship Test

Under WFTRA section 201, adding IRC section 152, the relationship test requires that the child be the taxpayer’s son, daughter, stepson, stepdaughter, or a descendant of any such individual. An individual legally adopted by the taxpayer, or an individual who is placed with the taxpayer by an authorized placement agency for adoption by the taxpayer, is treated as a child of the taxpayer by blood. A foster child who is placed with the taxpayer by an authorized placement agency, by judgment, decree, or by other order of any court of competent jurisdiction, is treated as the taxpayer’s child.

Age Test

The age test varies depending upon the tax benefit. Generally, a child must be under age 19 (or age 24, if a full-time student) to be a qualifying child for purposes of the dependency exemption. In addition, under IRC section 2(e)(3), there is generally no age limit that applies to any individual who is totally and permanently disabled at any time during the calendar year. WFTRA section 201 retains the present-law requirements that a child be under age 13 (if not disabled) for purposes of the dependent care credit, and under age 17 (whether disabled or not) for purposes of the child tax credit.

Tiebreaker Test

If more than one taxpayer is qualified to claim the qualifying child benefits under the three tests above, a tiebreaker test is used. First, if only one of the taxpayers that qualify is a parent, the child is deemed to be the qualifying child of the parent. Second, if both parents claim the child and the parents do not file a joint return, then the child is deemed a qualifying child of the parent with whom the child resides for the longest period of time; if this test results in a tie, it is broken in favor of the parent with the highest adjusted gross income. Third, if the child’s parents do not claim the qualifying child benefits, then the child is deemed a qualifying child of the nonparent claimant with the highest adjusted gross income.

The WFTRA did not make any changes to the rules governing the qualified child benefits claimed by natural nonparents and others.

This welcome “simplification” of the IRC will certainly reduce the confusion in determining whether or not a parent or other eligible custodian qualifies to claim the benefits of the various child exemption and tax credit provisions.


Mark H. Levin, CPA, is manager, state and local taxes, at H.J. Behrman & Company, LLP, New York, N.Y. He is a member of the NYSSCPA’s Tax Division Oversight Committee and New York, Multistate and Local Taxation Committee.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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