An old work friend of mine reached out to me recently with a tax question regarding her family situation. The short end of it: she, a single mother, was living with her child, her mother, and grandmother at her grandmother’s home. We’ll call my friend Ann for anonymity’s sake. Ann’s mother is recently retired and living on social security while Ann works a full-time office job while caring for her child. Ann’s grandmother has been long-retired and owns her house free and clear. Ann wanted to know who should claim her grandmother as a dependent for income taxes. As much as I wanted to hit that It Depends button and be done with it, I offered to learn a little more of her situation and give a more thought-out answer. 

Dependents, briefly 

First, let’s take a refresher on claiming dependents. The IRS has specific tests for taxpayers looking to claim dependents that need to be met. Essentially, taxpayers may claim a dependent as a “qualified child” or a “qualified relative.”  

A qualified child generally must be a lineal descendent of the taxpayer, be less than 19 years old (or 24 if a full time student), live with the taxpayer more than half of the year and does not provide more than half of their own support. 

Not meeting these criteria will give the taxpayer the option to claim the dependent as a “qualifying relative”. A qualified relative has similar requirements such as the dependent not providing more than half of their own support and living with the taxpayer for at least more than half of the year. Taxpayers often claim dependent parents and extended family they provide care for as “qualifying relatives” on their income tax returns. However, only one person may claim that qualified dependent. Adult siblings cannot both claim their widowed mother as a dependent on their own income tax returns, for example. Check out our article on dependents for more info. 

Notably, the qualified dependent must not have a gross income that exceeds a certain number each tax year, for 2023 it is $4,700. 

Depending on Dependents 

Going back to my friend Ann and her situation, who should claim the dependent? Reiterating the info above, Ann’s mother is retired and mainly lives on social security. Ann works a full-time office job and her mother and grandmother watch her child while she is at work. Ann and her mother provide support to Grandma and live at Grandma’s home. Ann did not indicate that Grandma supported herself or had any significant source of income that could possibly disqualify her as a qualified dependent. Based on the info I gleaned from my friend, Grandma may be claimed on Ann or Ann’s mother respective income tax returns. But, who would benefit more from claiming Grandma as a dependent? Taking as much as I could into consideration, it seemed Ann would benefit more. Ann would be able to claim two dependents (Grandma and her child) and qualify for a larger deduction, or even claim Head of Household status if she qualified. She may even be able to claim more for tax credits such as the Earned Income Tax Credit. Ann’s mother lives on social security and that is only partially taxed depending on her total income, assuming she had no other income sources. 

Income taxes require personalized advice. Each person may have unique circumstances surrounding their tax situation that requires further analysis and discussion, whether it be for a person who shares a multi-generational home or for a newly-minted business venture. As an accounting & tax firm, MiklosCPA regularly communicates with clients on their anticipated tax and accounting needs so our clients can succeed in their business dreams and ambitions. Learn how we can help you and your business needs by chatting with us. Also, be sure to check us out on our social media pages as we regularly post and share “good-to-know” accounting and tax articles.