 Oh, and welcome to the session in which we will discuss the qualifying child as well as the qualifying relative. Now, let's take a look at this tax form to understand the big picture. Why do we need to learn about this? In the prior session, we looked at the filing status of the individual, such as single, married filing jointly, married filing separately, head of a household, qualifying surviving, qualifying surviving spouse. And we stated that you have to have some sort of a dependent if you're ahead of a household and that dependent could be a child or that dependent could be a qualifying relative. So we talked about qualifying child QC and qualifying relative. So notice here the dependent after we list the dependent after we list their name or social security or relationship to you, we need to see if this dependent qualify you for the child tax credit or does it qualify you credit for other dependence which is qualifying relative. Now, obviously you want the qualifying child because it's higher, there's more money in there. So what we need to learn about here is when we come up to this dependent, whether it's a qualifying child or a qualifying relative, how do we make this determination? Before we proceed any further, I have a public announcement about my company Farhatlectures.com Farhat Accounting Lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today, no obligation, no credit card required. So dependent, there are two types of dependent, qualifying child or qualifying relative and unique tests apply to each type of dependent. So why it's important? So you might be saying, why do we have to know what's a qualifying child? Well, for one thing, for the purpose of the head of a household, we need to know if that individual is for the head of a household, whether it's a qualifying child or qualifying relative. Also, we're gonna learn later on about earned income tax credit, child and dependent tax credit, credit for child and dependent care expenses. So we need, we're gonna be using those terms later on when we talk about different credits. So that's why we need to know what is a qualifying child, what's a qualifying relative. Starting with a qualifying child, we have five tests to go through. We have the relationship test, residence test, age test, support test, and joint return. So as you know, anything about FARHAT, once I have a list, I'm gonna go through each of these lists in the tails to explain the concept. Starting with the relationship test. Now the first thing that comes to mind, if it's a relationship test about a qualifying child, so the child must be your son or daughter. That's the first thing you would think about, of course. But they could also be your step son or step daughter, your brother or sister. They can qualify as a qualifying child as long as they need other requirement, which we will see later. Step brother or step sister, half a brother or a half sister. And a standard of such individual, grandchildren, nephews and nieces. So notice, if you notice anything, it's you, it's the taxpayer, and notice it's gonna be people not younger below you. Like you cannot have your parents or your grandparents. Do you see this? It's all descendant of such individual. Now, a child who has been adopted or whose adoption is pending qualifies as well. A foster child may also qualify. Now, let's talk about the residency test, residence test. Qualifying child must live with the taxpayer for more than half of the year. Remember to qualify you as the head of a household. Remember the age when I spoke about head of a household, they have to live with you. Temporary absences is okay. For example, they could be in school and college or they could be have an illness in a medical institution that's fine. Those they get be waived. They must be a US citizen or a resident of the US, Canada or Mexico. Now, those same rules, they're gonna be applies to the qualifying relative as well. Same test applies to qualifying relative because we're gonna be discussing qualifying relative later. Age test. Remember we talked about brother, sister, so on and so forth. There is an age test. So the child must be under the age of 19, well, or under the age of 24, in case there were full-time student during any five-month of the year. Why five-month? Because in the US, when you go to school, each semester is four to five months. So even if they were one semester in college, so let's assume they were from January till May, January till May, that's five months. So once they attend one full-time semester, it doesn't matter. Now the age goes up to 24. Now they must be younger than you. So the younger than you, younger than you the taxpayer. If you're claiming someone as a qualifying child, that individual must be younger than you. So if we're talking about your brother and sister, that's what I said, they have to be younger than you. However, individuals who are disabled are not subject to the age test. So if the individual that you are qualifying as a qualifying child and that individual is considered disabled, you forget about the age test. Now let's discuss the support test. To be an eligible child, qualifying child, the individual must not be self-supporting. And the individual means the qualifying child. In other words, let's think about Macaulay Cokin, who is a famous actor, he was a child. You know, he's known for home alone. The point is they can be millionaires. The child can be a millionaire as long as they don't provide more than half of their own support. In other words, they did not spend their money on their own support. They could be making this money and don't spend it. They could put it in a bank account, in a trust account. So there is no gross income test. We have to understand this, this is important because we're gonna have another support test when it comes to the qualifying relative and we have to know the difference. So a child cannot provide more than half of his or her own support. So they can be millionaire, nevertheless, they're not spending that money. Someone else is spending the money on them, their parents, then that's fine. That's fine. Now, joint return test. The dependent cannot file a joint return with a spouse unless the only reason they're doing so is to get a refund. Now you might be saying, how can a child get married and have a spouse? Well, think about it. Remember, we said they have to be less than 19 or less than 24 of their college students. So it's possible that, for example, my son get married to someone in college and they work part-time. And as a result, they have some money, some taxes withheld from their paycheck and they wanted to file a return just to get a refund, just to get the tax withheld. They have no tax liability. Both of them, they have no tax liability. So what they would do, they will file a joint return and that's that. Otherwise, there should not be filing a joint return. And this same test also apply to a qualifying relative. So those are the tests for a qualifying child. Now let's take a look at a qualifying relative. Well, qualifying relative can be dependent if the following tests are met. The relationship test, and notice here, or that's important, member of a household test. And we have to explain this a little bit more on the next slide. Gross income test, which is totally different. You're gonna see this. Support test, little bit different. Little, you have to be very careful. We have the residency test, which is the same as qualifying child and the joint return test, the same as qualifying child. So I'm gonna go over those very briefly. Let's start with the relationship test or a household member test. Well, the relationship test for a qualifying relative is more expensive. You can have more people than a qualifying child. And this includes the following relatives. Now you can go, you remember I told you it has to be people below you with a qualifying child. Now it can be your parents, your grandparents. You can consider them as qualifying relative, qualifying relative to be qualified as a dependent. Uncles and aunts, also, certain in-laws, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law, why not? The relationship test also include unrelated parties. And here we're talking about boyfriend, girlfriend, cousins who live with the taxpayer the entire year. So here you have a different test, member of a household. You remember when I talked about her of a household, I said boyfriend, girlfriend, your lazy friend, your irresponsible friend, they cannot qualify you ahead of a household. But they can be considered your dependent for the dependency purposes, but those cannot qualify you for ahead of a household. Just wanna make sure this is clear. The relationship test, gross income test, this is different. If the individual, if that individual that you're trying to claim as a dependent make above a certain amount, what is that amount? That amount changes every year. But there is a logic behind that amount. It's called an exemption. And this used to exist before 2018. Each individual will have a personal exemption. Now the personal exemption for 2022 is 4,400. This is given by the IRS, and it changes from year to year subject to inflation. So if that individual earns more than 4,400, that's it. It means they are making enough money. You can, they cannot be your qualifying relative, okay? Remember, this does not apply to a qualifying child. A child, they could be making millions as long as they're not spending it to support themselves, then that's fine. There is no gross income test for the qualifying child. There's a gross income test for the qualifying relative. Now the income does not include, it's not counted. So you don't count their income if their income is tax exempt income. So if it's a minibund interest income, if it's social security income, any sort of tax exempt income will not be counted. So you will not count this income. Let's assume someone invested money and they're only earning minibund interest. Then no worries, we don't have to count this income. So they could still qualify, even though they might be making $10,000 in interest income from minibund, that's fine, because it doesn't count against that 4,400. A joint return test, we talked about this, the same thing as qualifying child. If they are filing a joint return, only to get a refund. Citizenship or residency test, the same thing as qualifying child, same concept. Support test. Now we have to be careful. Remember at the support test, I took my time to told you to be aware of it. Now the taxpayer, notice here, the taxpayer must provide more than 50% of the qualifying relative support. Under the child, the taxpayer did not have to do that. Under the qualifying child, the child did not provide more than 50% of their support. Under the qualifying relative, the taxpayer must. It's you who is spending money on your lazy boyfriend or girlfriend. It's you are spending the money. You have to do that for the support test and you only count the actual money spent, okay? Now scholarship don't count, for example, don't count for them if you're counting their support. Now two exceptions apply to the support test. Sometimes there's a multiple support agreement or children of divorced parents, we have to be aware of those rules. But remember under the support test, the taxpayer themselves, they have to be spending money on them, spending money on them. The child, as long as the child did not provide more than 50% of their own support. Now multiple support agreement, what does that mean? It means when you have several individuals together contributed the 50% plus. Well what happened? They agree together and they would allow one member of the group to be considered that they provided more than 50%. Remember you have to provide more than 50%. So let's assume we have three individuals. One's providing 45, the other individual, this is the first individual, the second individual is providing 48. So that's one, that's two, what's the third? So we're missing seven, I guess, two, seven. Seven that will make it 100%, right, 80. This is 100%. Now notice not one person is contributing more than 50%. But they can agree, they can agree this is A, B, C. They can agree, but however the party that we agree to cannot be providing less than 10%. So C cannot be, so it's either A or B. So A, B and C they can say, okay, A for year one you will be the person claiming this dependent, B in year two, or whatever they agreed on. Each eligible party must meet all other dependency requirements. Of course just the dependency requirement would still apply. A good example will be allowing children of elderly parent to claim exemption for parent where none individually meet the 50% support. I remember my grandma, I had like five individuals and as uncles and aunts and what they do and none of them meet the 50% test, they'll just agree amongst each other who's gonna claim her from year to year. Children of divorced parent, again the general rule here is the parent having custody, the custodial parent of the child between they spend more than 50% of the time with them, usually will claim it. This is called the time test. The support test here is ignored, it doesn't matter whether that there's a support test or not as well as the divorced agree. If the custody is 50-50, the parent with the higher adjusted gross income. Now the general rule does not apply if there's a multiple support agreement is in effect they're agreeing with each other or the custodial parent, basically they qualify to have it and said, you know what, I would let you, I would let you have the dependent child, that's fine. Now if both parties are not the parent, the person with the higher adjusted gross income, what should you do now? We should go to Farhat Lectures and look at MCQs through false questions that's gonna help you understand this concept. Qualifying child, it's gonna appear again and again and again later on when we talk about credit. It's something that you want to be familiar with. What's the difference between quantifying child, qualifying relative? Definitely a testable easy topic on the CPA exam, easy topic for the enrolled agent as if you are an accounting students taking the stack scores, you should know it. Good luck, study hard, good luck and stay safe.