Flexible Benefits

New Rules Define Qualifying Dependents

The Working Families Tax Relief Act of 2004 created a new standardized definition of dependent. An individual now would be considered a dependent if they fall under one of the following: 1) Qualified Child, or 2) Qualified Relative.

These new descriptions are used to provide benefits under health plans, Health Flexible Spending Accounts and Dependent Care Spending Accounts.

To be recognized as a qualifying child, a person must meet four tests:

Relationship. The taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or step sibling, or a descendant of one of these.
Residence. Has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, and other special instances.
Age. Must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the tax year.
Support. Did not provide more than one-half of his/her own support for the tax year.

This new definition is different from the previous in a couple of ways. First, the qualifying child must have the same residence as the taxpayer; and second, the taxpayer no longer needs to provide over half of the child’s support. The support test states that the child did not provide over half their own support.

Qualifying Individual for Dependent Care Assistance Programs:

For Dependent Care Spending Accounts, the “qualifying individual” means a dependent of the taxpayer, as defined above, who has not attained age 13.

A dependent of the taxpayer who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more that one-half of the taxable year.

The spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of the taxable year.