Yes, your aunt may need to file a tax return due to her 401k distributions. Once she starts withdrawing from her 401k, her withdrawals are taxed as ordinary income.
Listed below is a link from the IRS website detailing filing requirements for individuals that may be claimed by someone else:
Filing Requirements for Dependents
The IRS considers unearned income as taxable interest, ordinary dividends, capital gain distributions, unemployment compensation, taxable social security, pensions, annuities, and distributions. The 401k distributions are reported on Form 1099-R and are written as gross distributions on line 1 and taxable distributions on line 2a.
To go to the section of TurboTax to enter information from your Forms 1099-R, use these steps:
- On the top row of the TurboTax online screen, click on Search
- This opens a box where you can type in “1099-R”
- click the magnifying glass
- The search results will allow you to “Jump to 1099-R.”
- Click on the blue “Jump to 1099-R” link
For your mother to claim your aunt as a dependent, your aunt would have to meet all the requirements for a qualifying relative. The criteria for qualifying relatives are:
- Your aunt must be a US citizen, US resident alien, US national, or resident of Canada or Mexico
- Your aunt can't be claimed as anyone else's dependent
- Your mother must provide more than half of her support
- Your aunt must have lived with her the entire year
- Your aunt did not have a gross income greater than the annual threshold ($4,400 in 2022)
- Your aunt can not have filed a joint return for 2022
If your mother and aunt live with you, your mother may need help proving she pays over half the support.
See a few links below on qualifying relatives:
A case of two households
What are dependents?
[Edited 01/26/23| 1:25 pm PST]
@sue4
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