The Fostering Connections to Success and Increasing Adoptions Act of 2008, PL110-351, made several changes to the qualifying child (QC) definitions effective for tax years beginning after Dec. 31, 2008.
Section 501(a) of the act amended the age requirement (IRC § 152(c)(3)) to also require the QC to be younger than the individual claiming a QC exemption for the child. Other QC age requirements under prior law remain in place (the QC must be under 19 at the close of the calendar year in which the tax year begins, or under 24 if a student). Also remaining is the exception for QCs who are permanently and totally disabled at any time during the calendar year.
Example. For tax years beginning prior to 2009, a taxpayer could claim a QC dependency exemption for an older sibling. This option is not available for tax years beginning in 2009 and later unless the older sibling is permanently and totally disabled.
A second change (section 501(b) of the act) codifies (at IRC § 152(c)(1)(E)) the long-standing position of the IRS that a married dependent cannot be a QC if he or she files a joint return with his or her spouse, unless the return is filed merely as a claim for a refund. Congress did so to clarify that the restriction also applies to other child-related tax benefits, such as the child tax credit, that reference the subsection.
A third change (act section 501(c)(1)) requires that a QC for whom a taxpayer claims the child tax credit must be one for whom the taxpayer claims a dependency exemption. Although the child credit provisions of section 24 under prior law defined a QC as one qualified under chapter 152(c), it didn’t also require that the child in fact be claimed as a dependent.
Finally, under the “tie-breaker” rules of IRC § 152(c)(4) for determining which of two or more taxpayers who claim the same qualifying child may do so, prior law gives first priority to a parent over a nonparent. New subparagraph (C) further specifies that if any parent could claim a child as a QC but doesn’t do so, another otherwise eligible individual may do so only if he or she has a higher adjusted gross income than any parent eligible to claim the child as a QC for the taxable year.
Example. For years prior to 2009, parents with high AGI subject to phaseout of exemptions and reduction or complete loss of child tax credits could forgo taking QC exemptions and allow one child to take QC exemptions and a child tax credit for other siblings (assuming the claiming child met all other QC tests with respect to the siblings, including support). This option is now unavailable for 2009 and later years, unless the child claiming the child credit and/or exemptions for the siblings has a higher AGI than his or her parents.
By James M. Hopkins, CPA, professor of accounting, Morningside College, Sioux City, Iowa.