Q. Can I claim them on my taxes?
A. Simple answer: you can claim both of them on your tax return.
There are two types of dependents, "Qualifying Children"(QC) and standard ("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.
A child (or grand child if not claimed by the parent) of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her 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 (regardless of age)
- He did not provide more than 1/2 his own support*. SSI (supplemental security Income) is considered third party support and not support provided by the child. Food stamps are also 3rd party support. SSDI (social security disability income) reported on a form SSA-1099 is considered the child's own support.
- He lived with the parent (including temporary absences such as away at school) for more than half the year
So, it doesn't matter how much income she had. What matters is how much she spent on support. Money she put into savings does not count as support she spent on herself.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
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 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.
