This discussion has become mostly academic. Back to the original situation:
Elderly couple of husband and wife. No income. For years they have been claimed as dependents. Daughter claims mom as her dependent. Son claims dad as his dependent. Elderly couple starts receiving social security money SSA-1099. Somewhere around $10k each a year. They don’t have any other income but could have 1099-INT from banks. Maybe $10-15 annually.
Q. Do they have to report the $10k + $10k = $20k that they jointly receive from their social security?
A. No. Social security alone is not taxable (unless the total exceeds $64,000, not $32,000).
Q. With the $10-15 interest income?
A. Still no. That's not sufficient income to make their SS taxable on the worksheet.*
Q. Can they still be claimed as dependents?
A. That now depends on the support test. There's now $20,000 more money (self support) available in that calculation. 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.
*How much is "sufficient other income"? The simple answer is $13,850 (a single person's filing requirement). But the answer varies dependent on marital status, filing status, age, the amount of your Social security, and whether you are claimed as a dependent by someone else. The worksheet is the only way to be sure.
