Did you know, you may be able to claim your couch potato friend as a dependent?  Did you realize that support of your struggling aunt who didn’t live with you may qualify you for the dependency deduction?  Don’t feel bad, you would be surprised how many people don’t understand the dependency tax laws.

The bottom line is a dependent must be your “qualifying child” or “qualifying relative” and meet specific tests in order for you to claim them.

There are 5 test that will qualify a child as a dependent as follows:

• Relationship – Must be your child, adopted child, foster-child, brother or sister, or a descendant of one of these(grand or nephew).
• Residence – Must have the same residence for more than half the year.
• Age – Must be under age 19 or under 24 and a full-time student for at least 5 months. They can be any age if they are totally and permanently disabled.
• Support – Must not have provided more than half of their own support during the year.
• Joint Support – The child cannot file a joint return for the year.

There are 4 tests that will qualify a relative as a dependent as follows:

• They are not the “qualifying child” of another taxpayer or your “qualifying child”.
• Gross Income – Dependent earns less than $3,700 TY 2011 and $3,650 TY 2010.
• Total Support – You provide more than half of the total support for the year.
• Member of Household or Relationship – The person must live with you all year as a member of your household or be one of the relatives that doesn’t have to live with you see IRS Publication 501 for a list of qualifying relatives.

Many taxpayers are surprised to find they may be able to claim a boyfriend, girlfriend, domestic partner, or friend as a qualifying relative if:

• They are a member of your household the entire year.
• The relationship between you and the dependent does not violate the law (you can’t still be married to someone else.  Also check your individual state law.  Some states do not allow you to claim a boyfriend or girlfriend as a dependent even if your relationship doesn’t violate the law).
• You meet all the other criteria for “qualifying relatives” (gross income and support).

Here are  some common questions from our users that we answered:

Question:  My 26 year old is living with me.  He works and has made more than $3,600.  Can I claim him as a dependent?

Answer:  No, because your child would not meet the age test, which says your “qualifying child” must be under age 19 or 24 if a full-time student for a least 5 months out of the year.  He may be considered a “qualifying relative”, but his income must be less than $3,700 for 2011 and $3,650 for 2010.

Question:  I start work in September of this year and had my baby in March.  Can I claim my baby as a dependent on my taxes?

Answer:  Yes, even if you have a baby on December 31, you can claim them as a dependent on your taxes.

Question:  My boyfriend fully supports me.  We live with his mother, but we pay for our full support including rent.  His mother wants to claim us as dependents.  Who can claim the deduction?

Answer:  As long as your boyfriend is not married (be sure to check your individual state law regarding claiming a boyfriend or girlfriend some states don’t comply with the federal law), supplies over half of your support, and you lived with him the entire year, you did not earn more than $3,650 TY 2010 and $3,700 TY 2011, you would qualify as his dependent.  His mother could not claim you since she did not provide more than half of the support.

Question:  My spouse has not worked all year except for a month, can I claim him as a dependent?

Answer:  You cannot claim a spouse as a dependent.  If you file married filing jointly, you will get a personal exemption of $3,650 for TY 2010 and $3,700 for TY 2011 for each of you.

Now that you are armed with more knowledge about dependent tax laws, you may want to reconsider kicking out your free-loading friend.  They may help you get a larger refund.

For more information see our Who Counts as Your Dependent or Can I Claim My Girlfriend As a Dependent blogs.

Satisfying the gross income test

Unlike claiming a child as a dependent, it is not necessary that your elderly parent live with you. However, if your parent has gross income that is not exempt from tax of $3,650 or more, you cannot take their exemption on your return. When evaluating your parent’s gross income, do not include their social security payments and other tax-exempt pensions. Their gross income does include, however, dividends, capital gains from the sale of stock, interest earned in a bank account and other passive investments such as income from rental properties they own.

Satisfying the support test

Not only must your parent have minimal gross income, but you must also provide more than half their financial support during the tax year. Satisfying the requirements of the support test requires a comprehensive evaluation of your parent’s expenses. The fact that your parent receives sufficient income during the year does not necessarily mean the funds are used for their support. The support test looks to who actually pays rather than the parent’s ability to pay. For example, if your elderly parent only uses their Social Security benefits to pay $300 in monthly rent and you provide all other expenses that total more than $300 each month, then you will satisfy the requirements of the support test even if your parent puts thousands of dollars of tax-exempt income into a savings account each month.

Sharing your parent’s exemption

Oftentimes an elderly parent receives financial support from multiple children during the tax year. In total, the children may satisfy the support test; however, as individuals they may not. The IRS permits these siblings to take turns claiming the parent as a dependent if in the aggregate they can satisfy the support test. However, only a child who contributes at least 10 percent of the parent’s total support during the tax year is able to claim the dependency exemption. If you and your siblings agree to alternate claiming the exemption, the siblings who do not claim the exemption each tax year must sign a document stating that they will refrain from doing so in the current year.

Exemption limitations

If your Adjusted Gross Income (AGI) is more than the threshold amount for your filing status, you must reduce your total exemptions by 2 percent for each $2,500 or part of $2,500 that your AGI exceeds the limitation. However, the exemption will never be reduced to zero, regardless of your AGI. For example, in 2010, a single taxpayer with AGI of $166,800 or more must reduce the $3,650 exemption accordingly. Therefore, if your AGI is $169,400, you must reduce the exemption by 4 percent to $3,504 since the excess equals $2,600.

A dependent is an individual that relies on you for financial support. Being able to claim a dependent on a tax return allows for a number of tax-related benefits. Taxpayers who dependents can claim an additional personal exemption for each dependent. However, the matter of who can be claimed as a dependent is much trickier than it appears. One of the most popular questions we see each tax season is “Can I claim my girlfriend/boyfriend?” Let us explain who you can claim as a dependent.

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So how do those changes affect your tax situation? Can you claim your girlfriend on your taxes? What about your son who lives with your mother? And of course, pets. Can you claim Buster the beagle on your taxes? I sat down with Lee Ferris, one of our in-house tax experts and asked her those same questions.

The question and answer session aims to explain some of the more common dependent questions so you can get your biggest refund possible.

Question: Can someone claim their girlfriend or boyfriend on their taxes?

Answer: If your girlfriend has lived with you for all of 2009, her gross income is less than $3,650, and you’ve provided more than half of her total support (which is room board, food, car, insurance, etc.), you could claim her as a dependent on your tax return. To determine if you pay for more than half of her support, see IRS Pub 501 page 20. Each dependent you claim on your 2009 tax return reduces your taxable income by up to $3,650.

Question: What if we have a child, can I claim the baby also?

Answer: If the baby is your child, lived with you for more than half the year, and can’t support itself, you can claim the child as your dependent. And I know you are thinking, ‘Of course my baby can’t support itself.’ This was a-recent change by the IRS and a good example is if you have a child that is an actor. That child might be receiving a decent income and that counts as supporting itself.

But for all those parents with non-actor children out there, you can claim a child under the age of 19. If the child is a full-time student then you can claim them until the age of 24. If they are 25, working on their master’s degree and not earning any income you might be able to claim what the IRS calls a “qualified relative.” I would recommend visiting the IRS link to get more info on what defines the qualified relative and qualified child.

Question: My sister lives with me, and she receives Social Security Disability Benefits. If I charge her rent – which gets paid with social security – can I claim her as a dependent on my tax return?

Answer: If you are providing more than half of her total support (taking into consideration the rent she’s paying you) and she doesn’t make more than $3,650 a year, you can most likely claim her. Remember her social security isn’t counted as gross income. Look at the IRS worksheet in pub 501 to get more information on this.

Question: Can I claim any of my pets? What if they require special needs?

Answer: No. But I have been reading about a bill in Congress that is making the rounds that allows people to deduct pet medical expenses up to $3,500. The bill is proposed by Republican Thaddeus McCotter of Michigan. I am not sure what will happen with this but it is worth paying attention to.

Q: My parents just moved in with us so that we can take care of them. Can I claim them?

Answer: This is a common question right now because of the economy. If they are living with you, their only source of income is social security, and you are supporting them by more than 50 percent, you can claim them as a qualified relative. Remember, social security doesn’t count towards their gross income. Also, remember that since they are qualified relatives, they don’t have to live with you. You could be supporting them in their own home and still claim them as dependents.

Question: Can I still claim my spouse even though she received unemployment the majority of the year?

Answer: Even if your spouse is a stay-at-home mom, you can’t claim her as a dependent. This is why I encourage you to file a joint return. That way you get $3,650 for you and $3,650 for your spouse as a write-off – also known as an exemption. So 99 percent of the time it is more beneficial to file jointly because of that write-off amount and other deductions and credits.

However, one of my top questions this year is “Is unemployment taxable?” And the answer is, the first $2,400 of unemployment is NOT taxable. If both spouses receive unemployment benefits during 2009, each may exclude from taxable income the first $2,400 of benefits they received.

Question: I have been supporting my grandchild for the past six months and paid for everything. Do I claim her or does my daughter?

Answer: It depends. There are some questions you need to answer first. Will the father claim the child on his return? Is your daughter going to claim the child? If the child has lived with you for more than six months, both the father and your daughter are not going to claim the child , then yes, you can probably claim your granddaughter as a qualified child and get the various child credits on your tax return.

Question: Can I claim my niece if she is here on a student visa, going to college, and living with us? She makes no money here, pays no rent to us and we support all her expenses, except for tuition.

Answer: In this case, if she is under 24 and a full-time student and she’s not a qualifying child for anyone else, you can probably claim her as a dependent. But I like to urge people to please ensure that someone else is not already claiming the person in question as a dependent. Your niece can’t be claimed more than once. Also you can only claim the niece as a dependent if she’s a U.S citizen, U.S. resident, U.S. National, or resident of Canada or Mexico.

For questions we haven’t covered, please check out the IRS.gov page. The site has updated sample situations to help U.S. filers.

Check out this TurboTax video as well:

For 2009, the personal income tax exemption amount is $3,650. That’s per person, not per family. That amount applies so long as your adjusted gross income (AGI) falls under the phaseout amount. Phaseouts begin at $125,100 for taxpayers filing as married filing separately, $166,800 for taxpayers filing as single, $208,500 for taxpayers filing as head of household and $250,200 for taxpayers filing as married, filing jointly.

You are generally allowed one exemption for yourself if you cannot be claimed as a dependent on any other taxpayer’s return — whether or not the other taxpayer chooses to claim you.

If you are married filing a joint income tax return, you can claim one exemption for your spouse, even though a spouse is not considered your dependent. If you are married filing a separate tax return or as head of household, you can claim an exemption for your spouse if your spouse had no gross income, is not filing a tax return and cannot be considered the dependent of another taxpayer.

You can take one exemption for each person you can claim as a dependent, even if your dependent files his or her own tax return. A dependent is either a qualifying child or a qualifying relative.

There are six tests that must be met for a child to be your qualifying child:

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half-sibling, step-sibling or a descendant of any of them. Your legally adopted child is considered your child.

2. Your child must be under age 19 at the end of the year and younger than you or a full-time student under age 24 at the end of the year and younger than you. Your permanently and totally disabled child always qualifies, regardless of age.

3. Your child must have lived with you for more than half of the year. Exceptions apply for temporary absences such as illness and travel, children who were born or died during the year, kidnapped children and children of divorced or separated parents.

4. Your child cannot have provided more than half of his or her own support for the year. Support includes basic needs such as room and board.

5. Your child cannot file a joint tax return with any other person for the year.

6. If two taxpayers believe the child qualifies as a personal exemption under the other five tests, special tie-breaker rules apply:

• If only one of the taxpayers is the child’s parent, the child is treated as the qualifying child of the parent.
• If both parents claim the child, but file separately, the IRS looks to see which parent lived with the child the longest during the tax year. If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher AGI for the year.
• If no parent is able to claim the child, the child is treated as the qualifying child of the taxpayer with the highest AGI for the year.
• If no parent claims the child even though they were able to, the child is treated as the qualifying child of the taxpayer with the highest AGI if that taxpayer’s AGI is higher than that of any of the parents who could have claimed the child.
• If all else fails, the taxpayers may be able to agree between the two of them who may claim the child.

The tests that must be met for a person to be your qualifying relative are a bit different. They are:

1. The cleverly named “not a qualifying child test.” It’s just like it says on the tin: A child is not your qualifying relative if he or she is the qualifying child of any taxpayer.

2. The relative must either live with you all year as a member of your household or be related to you in one of a number of ways; the usual suspects qualify, such as your immediate family, but the test also extends to half siblings, step siblings and in-laws.

3. The relative must not have gross income for the year of $3,650 or more.

4. You must have provided more than half of your relative’s total support during the year.

Divorce and custody agreements may affect whether you may claim a child or relative as a dependent. Make sure that you understand what those agreements say that before you sign one; it’s difficult to change later. You should know that the IRS doesn’t want to be an active participant in any arguments about dependents, so be sure to work these details out beforehand, if possible.

To actually claim a dependent as a personal exemption on your tax return, you’ll need to provide the person’s name, Social Security number and relationship. If you’re using tax preparation software or a tax professional to prepare your return, you may need to provide the birth dates of your dependents.

A family of five could qualify for up to $18,250 in personal exemptions — that doesn’t even include related deductions and credits. Be sure you understand the rules for claiming personal exemptions and don’t pay more in taxes than you have to.

This post was originally posted as part of a series on Tax Basics for AOL’s WalletPop. You can read more from WalletPop’s tax expert, Kelly Phillips Erb, here.

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This is one of the top questions we are seeing on TurboTax’s Live Community. Here’s the answer.

If your girlfriend has lived with you for all of 2008, her gross income is less than $3,500, and you’ve provided more than half of her total support, you could claim her as a dependent on your tax return. To determine if you pay for more than half of her support, see IRS Pub 17, page 33, support worksheet http://www.irs.gov/pub/irs-pdf/p17.pdf .  Each dependent you claim on your 2008 tax return reduces your income by up to $3,500.

If she files a tax return, she would have to answer “yes” to the question “Are you being claimed as a dependent on anyone’s tax return?”  Note: You can’t claim her as a dependent if living together is in violation of your local law.

What if we’re a family of three with our baby daughter?

Since the baby is your child, lived with you for more than half the year, and doesn’t provide more than half of his/her own support (little hard for a baby to do) , you can claim your daughter as your dependent.

What if my girlfriend’s son (from a previous relationship) also lives with us?  Can I claim him as a dependent?

Usually you can’t claim a child as a dependent if the child can qualify as a dependent for someone else (your girlfriend.) However there is a special exception.  If your girlfriend is not required to file a tax return due to low income and she does not file or files solely to get a refund of withheld income, then you can claim her son as your dependent on your tax return.  If she files only to get an earned income credit, you can’t take her son as your dependent.

Do I still file as single since we’re not married?

As long as you’re the one who paid for more than half the cost of keeping up the home where you all are living and your daughter is claimed as your dependent, you can file as head of household.

Note: If your girlfriend and/or her son are the only dependents listed on your tax return, you cannot file as head of household.

Tax season is when we look at our family and friends in a different – and tax-deductible – light.

Can I count my sister-in-law as a dependent? How about my live-in girlfriend and her unemployed brother? What about my golden retriever?

Believe it or not, the IRS code tells us that any of the above, except the retriever, could qualify as a dependent under the right circumstances.

Why are dependents good to have at tax time?

For each dependent you can legally claim, you get a $3,500 deduction on your 2008 taxes. So if you are in the 25 percent tax bracket and have three dependents, worth $10,500 in deductions, you could save $2,625 on your taxes. (However, for some higher-income earners, deductions are reduced.)

In our society, where growing numbers of people live together who aren’t married or aren’t related, it’s good to know the rules. And if economic realities mean that you’ve had grown children move back home with you, or that you’ve extended financial help to a family member, you could get a tax break.

The following guidelines only apply to adult dependents. (The IRS has all sorts of rules for dependent children, particularly those whose parents are divorced. For information, see IRS Publication 504: Divorced or Separated Individuals.)

If you claim an adult as a dependent, that person must meet several IRS qualifications:

·Had less than $3,500 of gross income during 2008.

·Received more than half of his or her support from you for the year.

·Did not file a joint income tax return for 2008 with anyone else.

·Is a citizen or resident of the United States, or a resident of Canada or Mexico.

·Is a member of your household for the full year, or a relative who does or does not live with you.

As you can see, this last requirement opens your door – and your tax return – to many potential dependents, as long as you’re willing to support them.

So, to use our initial example, your live-in girlfriend and her brother who also lives with you could count as your dependents, if they meet qualifications.

But what if you support someone who doesn’t live with you, such as your elderly mother?

The IRS allows you to count as a dependent a whole list of relatives who don’t also have to occupy your home, as long as you provide more than half their annual support:

• Children, stepchildren, eligible foster child, grandchildren or great grandchildren
• Siblings, including half or step siblings
• Parents, grandparents, or any other direct ancestors
• Stepparents
• Aunts or uncles
• Nieces or nephews
• Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law

Unfortunately, your golden retriever is not among these. Nor is your gardener or house cleaner, even though it might seem you support them. They’re your employees, not your dependents.