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ACA Tax Question: Who Can You Claim as a Dependent?

Last updated March 17th, 2020

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One question HealthCare.com frequently gets from customers is whether or not they can claim a non-blood relative if they buy that individual’s health insurance. For example, if you buy coverage for a child in your care, can you claim that child as a dependent on your tax return? We turned to some tax experts to get the answers. Gabe Lumby, CPA, works with individuals and small businesses in the Springfield, Missouri, area. He explained that regarding claiming a dependent, the individual must be a qualifying child or a qualifying dependent. Plus, there are support tests for both. What does this mean?

To be a qualifying child:

  1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
  1. The child must be (a) under age 19 at the end of the year and younger than you (or your spouse if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse if filing jointly), or (c) any age if permanently and totally disabled.
  1. The child must have lived with you for more than half of the year.
  1. The child must not have provided more than half of his or her own support for the year.
  1. The child must not be filing a joint return for the year (unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid).

Also, if the child meets the rules to be a qualifying child of more than one person, only one can treat the child as a qualifying child. There are more special rules that must be determined if there is a question of which parent can claim the child.

If the child does not qualify as a qualifying child, he/she may be eligible to qualify as a qualifying relative. This test includes:

  1.  The person cannot be your qualifying child or the qualifying child of any other taxpayer.
  2. The person either (a) must be related to or (b) must live with you all year as a member of your household. (Your relationship must not violate local law).
  3. The person’s gross income for the year must be less than $3,950.
  4. You must provide more than half of the person’s total support for the year.

To sum up the above, the child would need to be a foster child, stepchild or would have to live with the taxpayer all year with income under $3,950. Also, the taxpayer would need to provide over half of the child’s support.

So, what if you pay for someone’s health insurance premiums but cannot claim them on your tax return? That individual (or the person who claims them) gets to check the box on their tax return saying they have health insurance—line 61 on Form 1040.

“If you purchase healthcare insurance for a friend or relative, this will benefit the person that claims the insured friend or relative on their tax return,” says Kevin Hopson, CEO and co-founder of online tax prep software TaxPoint. “The person claiming someone on a tax return must address the insurance issue. The taxpayer does not necessarily have to pay for the insurance, if the dependent is insured, it does not matter where the insured’s premium money comes from. The issue is whether or not each person on a return has insurance, and if they may be exempt for some reason.”

Hopson reminds consumers that to claim someone, you must first pass the support test. Issues may need to be looked at on a case-by-case basis. He adds that it is possible to claim someone that does not live in the United States if you provided more than half of their support. If this person is not a resident of the U.S., he or she would be exempt.

If you only provide health insurance to someone, it is considered a gift, explains Vincenzo Villamena, managing partner of CPA firm Online Taxman. That means you must make sure it is under $14,000 or it will be taxable.

What about the premium tax credit?

As far as the premium tax credit goes, two criteria apply to qualify for help paying health insurance premiums. Your income must fall within 100 percent to 400 percent of the federal poverty level. Also, you must buy health insurance through a state exchange or the federal marketplace. If you meet these two criteria, you can receive a tax credit in advance to lower monthly premium payments. Otherwise, you can claim the credit when you file your taxes the following year.

If you meet the above criteria, you may be eligible for the premium tax credit, which will help lower premiums for you and your dependents overall (i.e., not everyone in the family gets their own). If you meet the above criteria and purchase insurance on another’s behalf, whether or not that premium tax credit applies to their premium as well comes down to dependency status.

“You would only report your dependents,” Villamena says. “If the child is a dependent, then you get the benefit (counted as an exemption, potential child tax credit, etc); however, it would also impact the family’s premium tax credit. Once someone is a dependent, then they are factored into the equation.”

Lumby explains that children who do not qualify as dependents receive health insurance as a gift and would not be eligible for a tax credit on the return since they wouldn’t be listed on the return. He adds that when you report your household size, your household size and the total number of exemptions on your return will never be different.

“In other words, you would never be able to count a child as a dependent and not as a member of the household. Nor would you be able to count the child as a member of the household and not a dependent,” he says.

Need guidance?

Check out the article How to Prepare for Tax Time in the Age of Obamacare for more updates on how the Affordable Care Act could impact your federal taxes, what forms and fees you might need when filing this year, and information to help dispel common misconceptions around health insurance, taxes, and the ACA.

If you have questions and concerns about health insurance and your federal income taxes and/or need help filing, consult a tax professional who has ACA training and is up to date with the law.

Need to find a health insurance plan for your family? Search and compare plans at HealthCare.com or speak with a licensed insurance agent to enroll: 877-275-0485.


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