In many family situations, children and elderly parents or grandparents are dependent upon working-age taxpayers to provide them with financial support. The IRS says that taxpayers can take an exemption of $3,650 on 2010 tax returns for each dependent that they have. A grandparent must meet certain guidelines set forth by the IRS to qualify as a dependent.
Qualifying Children and Qualifying Relatives
The IRS recognizes two types of dependents: qualifying children and qualifying relatives. The IRS says that a qualifying child must be less than 19 years of age or younger than 24 if he is a full-time student, but there is no age requirement for qualifying relatives. This means that a grandparent can potentially be considered a dependent as a qualifying relative, but not as a qualifying child.
Member of Household or Relationship Test
The IRS states that a qualifying relative must either live with you all year as a member of your household or be related to you in one of several ways to qualify as a dependent. Relatives who do not have to live with you all year to be qualifying relatives include grandparents, parents and or other direct ancestors, like great grandparents. A grandmother can be claimed as a dependent even if she didn't live with you all year, so long as she meets the gross income and support requirements for qualifying relatives.
Gross Income Requirement
At the time of publication, a qualifying relative must have a gross income that is less than $3,650. Retired grandparents who have no regular source of income are likely to meet this requirement. According to the IRS, tax-exempt income, like certain Social Security benefits, does not have to be included in gross income; so, a grandparent may qualify as a dependent even if she receives more than $3,650 a year from Social Security.
The final criterion for determining whether a person is a qualifying relative is the amount of support the taxpayer provided to the relative. The IRS says that a taxpayer must have provided more than half of another person's support during a calendar year for that person to be considered a qualifying relative. If a grandparent used her own savings or income to pay for at least half of her own support, she does not qualify as a dependent.