What Is A Legal Dependent?
Legal dependents are relatively straightforward at first blush. Admittedly, most people are familiar with them. So, there’s not an uncommon misconception that the concept of a legal dependent is universal across any and all jurisdictions.
The reality though is that this concept means something very different from one legal jurisdiction to the next. More often than not there can be distinctions at the statutory and common law levels based on the legal test applied to determine if a person is legally acting as a dependent.
Most commonly though, legal dependents tend to be those who cannot provide for their own financial resources, and rely on you for necessary support. For example, this typically extends to your spouse or former spouse, children both minor and adult , grandchildren and other direct descendants, step-children and any other members of your household you may primarily be responsible for, even if they are not blood-relatives.
More narrowly, it means people with a particular legal status such as persons legally adopted by you or even persons legally your ward.
Just because someone is related to you by blood or marriage does not automatically mean they fit the definition of a legal dependent. For instance, a niece does not qualify as a legal dependent. A legal dependent is not permitted to extend to family members who do not legitimately rely on you for economic or emotional support. In short, just because a person is related to you, does not mean they automatically fit the legal dependent definition.
Types of Dependents
Types of legal dependents include the following, and each have their own qualifying criteria:
Children – Legal dependents can include unmarried children of any age who reside within the taxpayer’s principal abode and receive more than half of their total support from the taxpayer. Children who have reached the age of nineteen or have reached the age of twenty-four, while being a full time student, will also qualify as a legal dependent of the taxpayer.
Spouses – A tax filing status of "married filing jointly" is the only option that affords a legal dependent to the spouse of the taxpayer. In this situation, the spouse will not need to live with the taxpayer throughout the year. However, if the taxpayer files a "married filing separately" return, the spouse will not be a legal dependent of the taxpayer.
Relatives – The taxpayer must primarily support, and be related to the dependent as either a parent, stepparent, brother, sister, stepbrother, sister, nephew or niece. One additional requirement is that a relative must have lived in the United States for more than half of 2017, except in the case of residence in a foreign country or on duty with the Armed Forces of the United States.
Who Qualifies as A Legal Dependent?
A legal dependent is an individual who relies on the support of the employee or member. Having a legal dependent can impact a variety of benefit offerings. In order to be considered a legal dependent, certain criteria must be met.
Financial Support
The individual must have received at least one-half of his or her financial support from the employee or member. Some dependents may be considered supported even if more than one-half of his or her support comes from other sources if the employee was the only person available who could have been counted as the person required by law to provide such support.
Residency Requirements
The individual must have lived with the employee or member for at least one-half of the previous year. However, a full-time student away at school is considered a resident of the member’s home for this purpose.
Age Limits
The individual must be:
The maximum age for a qualified relative child is age 19 or age 24 if a full-time student. The maximum age for a disabled child is age 25. However, there is no separate coverage by age for a spouse; therefore, the only age limit for a legally married spouse is for the common-law qualified relative children.
Legal Effects of Being A Dependent
The act of claiming a dependent comes with a range of legal responsibilities and consequences. One of the most significant benefits is the child tax credit, which can provide substantial savings on income taxes. For those who are legally married and filing jointly, the tax code often rubs off the same benefits to a child regardless of whether a parent and their spouse are legally separated or living under one roof.
Children who qualify as dependents also impact a person’s Social Security. Should a retiree pass away, both the surviving spouse and the dependent child may be eligible for Social Security survivor’s benefits. When a child loses a parent, their eligibility for survivor’s benefits lasts until they turn 18 years old. If a child has a disability, though, they can continue receiving survivor’s benefits until they turn 25. The decision to claim a dependent can have other impacts on Social Security, including the possibility that it may increase benefits in the future, or it may allow a dependent to qualify for additional benefits in the event of the benefactor’s passing. Children qualify for benefits down the road as long as their parent made the appropriate Social Security contributions.
A child being legally listed as a dependent also impacts the decisions the parent can make when that child no longer can provide consent for him or herself.
For example, if a parent is no longer in a position to make decisions about their medical care and their child refuses to serve as their agent, a court-appointed guardian could step in, thanks to that child being listed as a dependent. Courts also have the power to remove a guardian if the court finds the guardian is not acting in the best interest of the dependent.
A common misconception is that you can automatically claim a tax credit for your child, but this is not necessarily the case. Even if you provide the bulk of your child’s care, they may not qualify as a dependent if they are legally emancipated or if they do not meet any of the requirements for qualifying child status or qualifying relative status.
The person filing the return must typically be able to provide more than half of the cost of a dependent’s support for the entire year to qualify for the credit. A child cannot be claimed as a dependent if that child can be claimed by someone else. In addition, the person claiming the dependent cannot file married and claim the dependent of someone else on their return. The IRS states that taxpayers can only claim a child on their return if the child does not file a tax return by themselves, unless the dependent’s filing only was to claim a refund of withheld taxes.
Given the wide scope of any legal decision about a dependent in Michigan, you should always seek legal advice when considering changes to your situation.
Filing Dependents on Taxes
One of the most important reasons to establish legal dependents is for income tax filing purposes. There are two distinct potential tax benefits available for dependent children under the age of 19 as well as dependent students under the age of 24. First, there is a credit that can be claimed against the income tax return and second, there is an exemption that is deducted in calculating the individual income tax liability. When filing a joint return, you are only able to claim the credits and exemptions if both spouses are considered parents of the dependent. If you are not married, you cannot claim the credit or exemptions unless you have legal custody of the dependent child . In order to qualify for personal exemptions, the dependent must be considered a legal dependent of the taxpayer for federal tax purposes, the dependent must be a child under the age of 19 or a student under the age of 24 for whom the taxpayer provides over one-half of the support (most states will defer to the federal code in determining dependency so this is generally not an issue when allocating support). The credit is in lieu of the exemption and cannot be taken if the exemption is used.
Common Mistakes: Parents who are not divorced sometimes overlook legal status when it comes to claiming a particular child as a dependent. As stated previously, if you are not married, you cannot claim the credit or exemption unless you have legal custody of the dependent.
Termination of Dependent Status
Life events like marriages, adoptions, deaths and aging-out (when a child turns 18) affect dependent status. When these events occur, you must start over and go through the entire process again to have that new individual become a legal dependent of the policy Owner.
For example, a married policy Owner with no dependents marries his long-time girlfriend. The marriage is not finalized until the day before the policy Owner’s birthday, then he adds her as a legal dependent. Before that day, she is not a legal dependent of the policy Owner’s policy. It does not count if her birthday is the same day as an indirect result of the marriage ceremony. However, if the dates of birth coincide and she is added on the same day as the marriage, she is considered a legal dependent of the policy Owner. To make this more understandable, consider the difference in the circumstances in example one with example two:
EXAMPLE ONE
Policy Owner’s wife turns 65 years old (as evidence of proof, she has a Driver’s License/card indicating her date of birth) and has just acquired coverage (her legal dependents are the policy Owner and his three children because his wife has not yet had a birthday and is not yet age 65) and she gets in a motorcycle accident and sustains the injury that requires hospitalization, among other injuries. If he has now added himself to the policy, as shown in example two, does that mean he should be able to submit a claim now for his wife’s injuries? No.
EXAMPLE TWO
Policy Owner’s wife turns 65 years old (as evidence of proof, she has a Driver’s License/card indicating her date of birth) and has just acquired coverage (her legal dependents are the policy Owner and his three children because his wife has not yet had a birthday and is not yet age 65) and he adds her as a legal dependent, today. Later that day, she gets in a motorcycle accident and sustains the injury that requires hospitalization, among other injuries. Should he be able to submit a claim now for his wife’s injuries? Yes.
In addition, the policy Owner may add himself to his policy as a legal dependent but cannot be named as the primary policy Owner (i.e., insured party) in both the policy Owner slot and the insurable interest (see section on the Insurable Interest/Insured Party). The terms Owner and insured are not interchangeable.
It is important to remember that when a change in marriage status occurs, it is not the same as simply adding someone because he or she is getting married. The actual marriage must take place in order to submit documentation (evidence of proof) that reverts the old legal dependant status to only the policy Owner and the former spouse as the legal dependent, who is now considered the ex-spouse with the effect that now, the policy Owner has only himself and his three children. When someone gets married, who is not already the legal dependent of the policy Owner, the legal dependent status is vacated only for the person that is getting married – it does not stop for the dependent spouse at the same time.
We all experience life changes, and unfortunately, not all of them are pleasant. There are a couple of important things to know regarding what to do if your spouse or child dies.
Spouse: When a married policy Owner’s spouse passes away, the policy Owner must submit the death certificate along with the policy Owner’s request form to update the policy (e.g., beneficiary designations) to remove the deceased spouse from any instances where that spouse is a legal dependent of the policy Owner (e.g., as the spouse, or other disposition).
Child: When a minor policy Owner’s child passes away, the policy Owner need only submit to his or her claims department a copy of the minor child’s death certificate, but only when that child is a legal dependant of the policy Owner. If the minor child is no longer a legal dependant of the policy Owner, then the policy Owner need not submit anything.
When a minor child ages out of a policy, the legal dependant status of the minor child is vacated once the minor child has reached the age of 18 (if not specified in the policy as older). Therefore, the policy Owner would only submit the child’s birth certificate and aging-out documentation (i.e., driver’s license or government-issued identification card with photo) to his or her claims department to be updated.
Conclusion and Further Support
The above serves merely as a general overview of the topics to be considered when determining whether an individual is a "legal dependent" qualifying for tax dependent status. The information is not meant as specific legal tax advice, and readers should select personal tax advisers of their choice to assist with their individual circumstances, in light of their own particular facts. However, following are a few Web sites that may prove helpful to the reader in learning more about the issues discussed in this article: Information detailing what the federal government considers as a responsive standard for a "legal dependent" can be found online at the U.S. Internal Revenue Service Web page , at http://www.irs.gov/help/English/SSARS7.html.
The New Jersey Division of Taxation addresses "dependents" in Chapter 8 of the 2005 New Jersey Resident Income Tax Return Instruction booklet, which can be viewed online at http://www.state.nj.us/treasury/taxation/pdf/other_schedules/2005-ITINSTR.pdf. While some details in this instruction booklet predate the 2005 New Jersey statute, it should assist the reader in learning more about the New Jersey definition: http://www.njleg.state.nj.us/2004/Bills/S2000/1069_I1.