Family ties are so strong that our love thrives despite any distance between us. That’s why we’ll always be willing to help them out; it doesn’t matter where they are located. Sometimes we’ll mail them packages stuffed with gifts and souvenirs for a special occasion just because we care. What if your help goes beyond mailing a few boxes with gifts every year for the holidays? Many are willing to offer substantial financial help to their family members living in a foreign country. If that’s your case and with tax time coming, you’re probably wondering, “Do I qualify for any tax breaks if I financially help my family members living abroad?”
What are the basic requirements?
It is true that the IRS may allow taxpayers to claim family members living abroad that they financially support. However, that doesn’t mean you can automatically deduct all of the financial help you provide them. Like any other tax deductions, there are requirements that come along with the tax break. After the Tax Cuts and Jobs Act was passed by Congress in late 2017, tax benefits for dependents changed.
There are two ways to claim a dependent: Qualifying Child and Qualifying Relative. The first one mentioned, Qualifying Child, will probably not be an option if your dependent child is not living with you because the dependent child must live with the taxpayer for more than half of the year to qualify. On the other hand, if you’re financially supporting your relatives living abroad, you might be able to claim them as Qualifying Relatives if you meet certain requirements. What are those requirements? Here are some of them:
- You can only claim a family member that you are financially supporting as a dependent if they are either a U.S. citizen, U.S. national, U.S. resident alien or a resident of Canada or Mexico. If the family member you are supporting lives abroad in a foreign country other than Canada or Mexico and they are not either a U.S. citizen, U.S. national or U.S. resident alien, you won’t be able to claim them as your Qualifying Relatives on your tax return.
- They also need to meet the Relationship Test. What does that mean? Well, that they have to be one of these: Your child, stepchild, foster child, a descendant of any of them (for example, your grandchild), a legally adopted child, your brother, sister, half-brother, half-sister, stepbrother, stepsister, your father, mother, grandparent, other direct ancestor but not foster parent, your stepfather, stepmother, a son or daughter of your brother or sister, a son or daughter of your half-brother or half-sister, a brother or sister of your father or mother, your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
- The taxable gross income of the relative you’re supporting must be less than $4,200 in 2019 (this amount will increase for future tax years).
- As the taxpayer, you must have provided over half of the relative’s support during the tax year.
Also, take into consideration that your relatives will need a tax identification number in order to claim them. That can be a Social Security number or an ITIN (Individual Tax Identification Number), which you can apply for by submitting a W-7 form.
What are the tax benefits?
This is one of those moments that expectations and reality might not necessarily match. It is true that you can potentially claim your family members living abroad as dependents, but a Qualifying Relative won’t qualify you for other benefits related to having a dependent child-like filing as Head of Household and some other tax credits related to dependent kids like the Earned Income Tax Credit and the Child Tax Credit. The main tax benefit of being able to claim a family member as a dependent used to be the dependent exemption that, in years prior to Tax Reform was up to $4,050. However, under tax reform, the dependent exemption was eliminated for tax years 2018-2025. Now you can claim a new credit called the Other Dependent Credit (ODC) up to $500 for non-child dependents. Unlike the Child Tax Credit, you can claim the Other Dependent Credit if your dependent is your child 17 and over, your child with an ITIN or other relatives. Under tax reform, your dependent child needs a social security number and not an ITIN in order for you to claim the Child Tax Credit.
If you need to file a tax return for a tax year prior to 2018, you can potentially still claim the family member that you supported and claim a dependent exemption or deduction. Remember, if you want to claim a credit or deduction you missed, you can file within 3 years of the return due date.
Still, whether you can claim a tax benefit for the financial help you provide to your family living abroad or not, nothing can take away the joy and satisfaction of helping them. Also, remember that with TurboTax, you don’t have to worry about being a tax expert to file your return. TurboTax will ask simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers to help you get the greatest possible refund. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average of 15 years experience to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish year-round and can review, sign and file your tax return.