Qualifying Relative Definition Still Uses Inflation Adjusted Exemption Amount


The IRS clarified who is a “qualifying relative” for the new $500 dependent credit and head of household filing status for tax years 2018-2025. The new rules will continue to use the inflation adjusted exemption amount to define qualifying relative.

Qualifying Relative Definition

For 2018 through 2025, the personal exemption amount is zero. However, the Code uses the personal exemption amount in other ways. For example, the personal exemption amount provides the gross income limitation in the definition of “qualifying relative.”

To be a qualifying relative, an individual’s income must be less than the exemption amount. Thus, if there is a zero-exemption amount, then an individual could be a qualifying relative only with income less than zero.

Also, the new $500 credit depends on a nonzero exemption amount. If the exemption amount is zero, qualifying relatives cannot meet the definition of dependent. Thus, the $500 credit would not be available for qualifying relatives. The credit would be available only to a limited category of qualifying children who do not qualify for the child tax credit.

Head of Household Definition

Head of household filing status also depends on a nonzero exemption amount. An individual is a head of household if the individual maintains a home for either:

  • a qualifying child, or
  • any other person who is a dependent of the taxpayer.

Because the only dependents other than qualifying children are qualifying relatives, the express provision for other dependents would be rendered superfluous by:

  • a zero exemption amount; or
  • the resulting near elimination of qualifying relatives.

It also would deny head of household filing status to individuals:

  • who previously qualified for that filing status, and
  • otherwise would continue to qualify.

Accordingly, the IRS intend to propose regulations to clarify that the reduction of the exemption amount to zero for tax years 2018-2025 does not apply to the gross income limitation in the definition of qualifying relative. The exemption amount will be treated as $4,150 (adjusted for inflation) for tax years in which the exemption amount is zero.

Reliance

Taxpayers may rely on the rules described in section 3 of the notice until the IRS releases proposed regulations.

Comments Requested

Written comments may be submitted by November 16, 2018. Comments may be: