I know I'm dependent...should we make it IRS official?
January 27, 2017 7:39 AM   Subscribe

I live with friends because my health persists in being absolutely fascinating. They provide approximately 99.8% of my support. (I buy fruit once in a blue moon.) My income for 2016 was under $500, from direct sales, and I expect to have no state or federal tax liability. I know I don't have to file a return. Can my friend claim me as a dependent? Should he? Would it cause problems for either of us in the future? (YANACPA, etc.)
posted by The Almighty Mommy Goddess to Law & Government (7 answers total) 3 users marked this as a favorite
Here are the tests for claiming someone as a qualifying relative. The one you don't mention is whether or not you lived with this person for the entire year, which is required to claim someone who is not a legal relation.
posted by muddgirl at 7:44 AM on January 27, 2017 [2 favorites]

I have done this with my non-married partner on years when he was too sick to work but not sick enough to qualify for disability. (I'm actually able to do it this year too because he didn't make over whatever the limit currently is -- it's around $4000 but I'm not sure what the exact amount is) It has not caused any trouble for us, but the additional refund has been nice. (I never adjust my paycheck withholding because I never know if he's going to be able to be claimed or not depending on the year. Health problems are so fun.)

(The IRS tool here has been helpful to me in the past, though it seems to be acting wonky this morning.)
posted by MCMikeNamara at 7:56 AM on January 27, 2017

As muddgirl's link states, "Despite the name, a Qualifying Relative does not necessarily have to be related to you." For tax issues, it's generally better to go to the IRS site, either the tool mentioned above or Publication 50, "Qualifying Relative."

As far as I know, whether you are claimed as a dependent in one year has no bearing on future years's returns, so if you qualify, go for it.
posted by Mr.Know-it-some at 8:00 AM on January 27, 2017 [1 favorite]

You don't have to file a return, but it sounds like you could qualify for the Earned Income Tax Credit if you did. I'm a little rusty on these things and the max credit is pretty low if you don't have kids, but you might want to do a dry run of your taxes and see what the refund comes out to, just in case there's something not obvious from how you've described your tax situation here.
posted by yeahlikethat at 8:38 AM on January 27, 2017 [1 favorite]

You can't get the EITC if you are someone else's dependent.

You should still file a return. You might get a refund/credit because your income is so low; having filed a tax return is also the starting point if you might be eligible for benefits (disability, food stamps, etc.) You can always stop being a dependent later if your situation changes.

States will widely vary in how you receive benefits and it may be more difficult to get benefits in the future if you can be presumed to have another source of support, but you'd need to look into the process for your actual state to be certain.

You should definitely make it tax-official if you expect to be a dependent next year, since this will probably benefit your friend (it's sort of like the tax credit you get for having dependent children, to the best of my knowledge.)

I would be concerned that you would have to pay self-employment tax because your business made just enough money that it wouldn't necessarily be considered a hobby. On the other hand, it's your only income, so various credits (and potential business expenses you could write off) might eat up any tax obligation. I am not an accountant, but I am somewhat familiar with the hobby/business rules since I sometime sell paintings freelance. You should speak to an accountant. They may be low-income tax clinics in your area; call your local library because they will know.
posted by blnkfrnk at 9:31 AM on January 27, 2017 [1 favorite]

One thing to look at is going to be health insurance. Do you have any insurance or can you claim an exemption for not having coverage? If not, you may end up having to pay the higher of $695 or 2.5% of your household income as a penalty. If someone claims you as a dependent, they will have to pay this penalty. It may still be worth it because they can file head of household and get your personal exemption, but run the numbers both ways to be sure.

VITA/TCE locations can help you file taxes. Many take appointments, but not all of them do.
posted by soelo at 9:54 AM on January 27, 2017 [3 favorites]

I second soelo's comment; you can get your taxes prepped for free at various agencies due to your low income. I hope your health improves!
Also, I second the Earned Income Tax Credit as well.
posted by erattacorrige at 1:07 PM on January 27, 2017

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