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.
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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.