The Working Families Tax Relief Act of 2004 created a new standardized definition of dependent. An individual will now 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.
Eligible Adult Child:
Under the recently enacted Patient Protection and Affordable Care Act and its companion bill, the Health Care and Education Reconciliation Act of 2010 (collectively the “Act”), Code Section 105(b) was amended. Employers are now able to extend the exclusion from income for non-covered medical expenses to any employee’s child who has not attained age 27 as of the end of the tax year. As of March 30, 2010, employees are now able to claim non-covered medical expenses for their children to age 27 under their flexible benefits account. The child does not need to be a tax-code dependent of the employee to qualify for this exclusion; therefore, criteria such as marital status, full-time student status, gross income limitations and financial support are disregarded. For purposes of this rule, "child" means an employee’s son, daughter, stepson, or stepdaughter and an individual who is legally adopted by the employee, an individual who is lawfully placed with the employee for legal adoption by the employee, and an eligible foster child.
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.