CASE STUDY #10: Daughter and Her Child Living With Daughter’s Mother
Susan, Janice’s daughter, and her minor child Whitney, age 4, have lived with Janice the entire year. Susan is age 22, unmarried, not a fulltime student and has no income.
Dependency Susan – As a 22-year-old who is not a student, Susan does not meet the requirements of a qualified child. She would have to be under the age of 19 to be a qualified child. However, Susan does meet the requirements of a qualifying relative since she meets the relationship test, gross income test, joint return test, citizenship test and support test and therefore is a dependent of Janice.
Dependency Whitney – Whitney meets the principal place of abode test, age test, and gross income test and therefore is a qualifying child of both her mother, Susan, and her grandmother, Janice. Thus, either Susan or Janice can claim the dependency for Whitney, and they can decide between themselves who will claim Whitney. In this circumstance since Susan is not filing, Janice will claim Whitney’s dependency.
“ Variation: Mother & Grandmother Claim Child - If Susan had to file a return and Whitney was the qualifying child of both Susan and Janice, they could still decide who would claim Whitney’s dependency. If they could not agree, or if both claimed Whitney as a dependent, the tie-breaking rules would apply. The tie-breaker rules specify that in the case where a parent and another relative claim or could claim a qualified child, the dependency defaults to the parent. Therefore, Susan would be entitled to claim Whitney’s dependency. ”
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Filing Status Janice– For Janice to claim Head of Household, she must pay over half the cost of maintaining her home, which is the principal place of abode for more than one-half the year for a qualified child or a dependent relative. Janice can claim Head of Household since she has a qualifying individual, either Susan or Whitney.
Other Issues – Since Janice is claiming Whitney, who is under age 17 (under 18 for 2021), and meets the relationship test, member of the household test, is not self-supporting and is claimed as Janice’s dependent, Janice can claim the child tax credit for Whitney subject to the AGI phase-out. Janice can also claim EITC subject to disqualifying income limits and AGI phase-out provided she has earned income.