Cousins as Dependents?

Today's question comes from Iris in New York. She asks, "I know in the year 2004 you could not claim a cousin as a dependent yet you say that for 2005 you can. Can you let me know where did you get this information from?"

Let's start from the beginning. Congress passed a law that re-defined who a dependent is. The law went into effect for the year 2005. The change was part of the Working Families Tax Relief Act of 2004 (Public Law 108-311), and the law modified Internal Revenue Code Section 152. (The old text of Section 152 is found at the Legal Information Institute. The new text of Section 152 is available at TaxAlmanac.org.)

Under the new definition of a dependent, a dependent must meet either the tests for a qualifying child or for a qualifying relative. Under the qualifying child requirements, the dependent must be closely related to the taxpayer. The allowable relationships for qualifying child are: child, step child, adopted child, foster child, brother or sister, or a descendant of one of these. A cousin does not fall into one of these categories, so we would have to look to the qualifying relative requirements.

There's two things going on under the qualifying relative requirements. If the dependent is related to you in certain ways, there is no residency requirement. For example, if you support your parents, you can claim them as dependents and they do not have to live with you. A cousin is not listed among these relationships. You can also claim a qualifying relative if the dependent meets the mandatory residency requirement -- that is, they must live with you for an entire calendar year. Cousins can be claimed under that exact situation -- they meet all the other tests for qualifying relative AND they live with you for an entire calendar year.

However, qualifying child rules always, always, always take priority over qualifying relative rules. So if your cousin meets the tests to be someone else's qualifying child, then you cannot claim them as a qualifying relative. This is true even if the other person does not want to claim them.

You are right that you could not claim a cousin under the old rules for dependents. So this new law makes it easier for some people to get a tax break for supporting their family.

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