Are taxpayers required to report all dependents on their tax return?

[taxea]

Because if they are not Qualifying Children and you are not supporting them >50% or their gross income is over the exemption amount, then they cannot be claimed as your dependents. This discussion thread is about people who can be claimed as dependents.

I'm astounded that ten years after UDC rules went into effect, folks in this thread still seem to have basic misconceptions about the rules for dependency.

As for a dependent having income below the filing threshold not needing insurance coverage, that would be like saying anyone's young kids don't need insurance coverage and can thereby avoid the SRP. Clearly not the case. The intent of the law was to require EVERYONE to have minimum essential coverage, unless they meet one of the exemptions.

Now when it comes to CALCULATING the penalty, I vaguely recall that household income wouldn't include a dependent's income if you don't claim them or something like that, but I haven't researched it.

this is semantics, as I see it, anyone (child/adult child/qualifying relative) that you support is your dependent.

[taxea]

You know this law s--ks!
I have a client who takes (legally) two grandchildren as dependents because they provide more than 1/2 of the kids support. The kids are covered on their mother's insurance. What do you do in this case? If you have proof that the mom covers their insurance can you just check covered all year?

[TaxGuyBill]

You know this law s--ks!
I have a client who takes (legally) two grandchildren as dependents because they provide more than 1/2 of the kids support. The kids are covered on their mother's insurance. What do you do in this case? If you have proof that the mom covers their insurance can you just check covered all year?

Yes, it doesn't matter who pays for the insurance, as long as the person is insured.

[taxea]

Thanks Bill. I am still researching the issue of whether you are required to take a dependent that you are qualified to take. I think it would be ducking the rules if you don't take him/her because it changes your refund.

[Burke]

Question was answered just this week by NATP Research:

"Question: Bonnie and Clyde are married. They have an adult son, Dylan, who is between jobs and has moved back home with them. Dylan has no income for 2015 and no health insurance. Dylan meets all the requirements to be a qualifying relative for Bonnie and Clyde. However, because Dylan has no health insurance Bonnie and Clyde do not want to claim him as a dependent to avoid paying the shared responsibility payment for him. Can Bonnie and Clyde simply ignore Dylan and not report him on their tax return so they will not be responsible for his shared responsibility payment?

Answer: No. An individual is a taxpayer’s dependent for a tax year if that individual satisfies the definition of dependent under §152, whether or not the taxpayer actually claims the individual as a dependent. If no one claims the individual as a dependent, the taxpayer with priority under the tiebreaker rules of §152 for claiming the dependency is liable for the shared responsibility payment.

Therefore, since Dylan is a qualifying relative of Bonnie and Clyde, whether they claim him as a dependent or not, they are responsible for a shared responsibility payment because he did not have health insurance.

The instructions to Form 8965, Health Coverage Exemptions, have steps and worksheets to calculate the shared responsibility payment. In step 1, questions 2, 3 and 4, there is a clear reference to dependents claimed or could have been claimed."

I had this exact same situation last year and the parents had to pay the penalty. So they went ahead and claimed him.

[TaxGuyBill]

Thanks, but I think NATP is wrong. I will contact them to see what they have to say.

[New York Enrolled Agent]

Thanks, but I think NATP is wrong. I will contact them to see what they have to say.

TGB - in an earlier post you thought the word exempt in the cited reg for §5000A might be determinative

I think that "nonexempt" means the individual is not exempt from the requirement to have health insurance. I don't think it relates to the income threshold.

I'm not a member of NATP but I'd be surprised if they had that one wrong.

[Burke]

I have a client who takes (legally) two grandchildren as dependents because they provide more than 1/2 of the kids support. The kids are covered on their mother's insurance. What do you do in this case? If you have proof that the mom covers their insurance can you just check covered all year?

Yes, you can.

[taxitc]

What did they say?

Thanks, but I think NATP is wrong. I will contact them to see what they have to say.

Have a client (parents over 70) supporting a 54 year adult son who doesn't work. Now tell me if they are required to buy him health insurance or PAY A TAX PENALTY. If they "make" him homeless, No penalty. What should I tell them to do?

[Burke]

If he lives in the household, they are subject to the penalty. Whether this is fair or not, that is what the law is. However, the penalty will be far less than insuring him. They can claim him as a dependent. What happens if he gets sick? Do they want to absorb that expense?

[mikeburg]

Thank you everyone.

So it looks like the parent must pay the penalty for his dependent son not having health insurance no matter whether the taxpayer claims the dependency exemption or not.

All this discussion has been really good. Thank you, mikeburg