There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.
Your brother-in-laws cannot be your QC, because they are not closely related enough. For a QC,
the child must be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
So, next you look at the Qualifying relative rules. A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:
- Closely Related OR live with the taxpayer ALL year
- His/her gross taxable income for the year must be less than $4400 (2022).
- The taxpayer must have provided more than 1/2 his support
- He must be a US citizen or resident of the US, Canada or Mexico
- He must not file a joint return with his spouse or be claiming a dependent of his own
- He must not be the qualifying child of another taxpayer
In addition to the above requirements, to claim your Mother-in-law's(MIL) children, they must meet all of the above requirements and:
--- your MIL must not be required to file a return,
---she does not file a return claiming the children
You are not their "sole provider", since they are receiving child support. The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf The support value of a home is the fair market rental value, divided by the number of occupants.
The question you didn't ask is: can the Father-in-law claim the children, since he is providing child support. The answer is no, unless the mother allows him to claim them, by signing and giving him IRS form 8332.
Another issue: your brother-in-law is usually your spouse's brother. Which means he is closely related to your spouse, so your spouse can claim him as a QC. This means that you can claim him as a QC, too, if you file a joint return with your spouse.
A child closely related (defined above) to a taxpayer can be a “Qualifying Child (QC)” dependent, regardless of the child's income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support
- He lived with the relative (including temporary absences) for more than half the year
- He is younger than the relative (not applicable for a disabled child)
- If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child (this essentially means that you have the parent’s permission to claim the child, if the child also lived with the parent more than half the year)
- If the parents of a child can claim the child as a qualifying child but no parent so claims the child, no one else can claim the child as a qualifying child unless that person's adjusted gross income (AGI) is higher than the highest AGI of any of the child's parents who can claim the child.
