Question on Support Test for Dependent Child (with Social Security Income)

[bws92082]

Here is the scenario. I am a middle-class, single parent and live with my two children (minors) who each receive $12k in social security benefits per year (that's their total income which is untaxed).  I have tried to complete the IRS 'Support Test for Dependent Child' worksheet but I'm not sure how to account for everything exactly since money is so fungible.  I can say that the "fair rental value" of our home (which is paid off) is $42,000/yr and our total living expenses are in the normal range.

So my question is, does my filing as 'Head of Household' with two dependents seem reasonable in my case given the info provided above, or could this filing status raise a red flag with the IRS?

The biggest uncertainty for me here is how the child's $12k social security benefit income is treated by the IRS--is it enough to pay over 50% of the child's support (and thus disqualifying the parent from HOH status)? I believe this can be a gray area since not all of the social security amount (if it indeed figures in the support total) may be allocated specifically toward support. (It's a moot point though if the child's total combined support amount is over $24k since the parent would pay over half ($12k+) in any case.)

Thx

[Bsch4477]

Seems reasonable. 

[xmasbaby0]

The SS your children receive is not entered on a tax return unless the child has some other income along with the Social Security.  It does not go on your tax return; it would only go on a tax return filed by the child if the child has income from an after school job someday, for example.

[bws92082]

Yes, but regardless of whether or not the child's social security income is taxable, or whether a child's tax return is required, the question of the child's source of support still remains. I've received mixed answers when I've checked other sources on exactly how social security benefits are treated regarding support. Some say the untaxable portion of social security is invisible to the IRS in terms of support, while other sources say the child's untaxable social security can figure in some way in the support criteria.

[rjs]

It doesn't matter how much Social Security income your children receive, or how much of it is taxable. What matters is whether you actually use the money for their support. If you put some or all of the money in the bank or into investments, that is not money that's used for support. The IRS can't see how much of the money is actually used for support.

As you can see from the support worksheet, support includes housing, food, clothing, education, child care, medical care, and other things. It seems to me that $12,000 a year would be nowhere near half of the cost of supporting a child, and you said that not all of it is used for support. I think you should go ahead and file as head of household with two dependents. I don't think you have to worry about raising any red flags.

This is just my opinion, of course, and I don't have all the facts. If you're worried, you might want to consult a local tax professional for advice.

[NCperson]

@bws92082 one other thing... are your children receiving SS due to the passing of your spouse?  

if you spouse passed in 2021 or 2022, then the correct filing status for 2023 would be QSS (qualifying surviving spouse)

[bws92082]

No--I am retired and collect ss myself, so my children qualify too.

[Hal_Al]

Q.  Is the social security  income a child receives counted as support provided by  the child, himself?

A. Yes, but only if it is actually spent on support.  "Support" includes money spent on entertainment.  If the child buys himself a video game or a pony, that expenditure is counted as support.  But, any money the child puts into savings & investment does not count as support he spent on himself. 

As you pointed out, 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. $42,000 / 3 = $14,000 support value,  for each child, from the home.  Since that alone is more than the maximum $12,000, of support, the child could possibly provide, it's obvious that each child does not provide more than half his own support, not even counting all the other expenses (food, utilities, clothing, transportation, education, etc). 

Clearly they are your qualifying child dependents and, as such, also qualify you for Head of Household filing status. 

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

[bws92082]

It seems like allocating a large share of the Social Security benefit to savings/investments might be considered a loophole or evasion--if a child receives a social security benefit, isn't the intent to pay basic expenses, not to use it for other purposes?

[Bsch4477]

There is no restriction on the use of Social Security income. 

[DoninGA]

@bws92082 There is no requirement in the tax code for how the Social Security benefits are to be used by the recipient of the funds.  Intent is one thing, requirement is another.

[rjs]

The intent of the lawmakers doesn't matter. The law allows you (or the child) to use the Social Security money for whatever you want. Using a loophole (if that's what it is) is perfectly legal. It's not an evasion.

Anyway, as Hal_Al said, based on your figures it appears that even if you use all of the Social Security for basic expenses the child is not providing anywhere near half of his or her own support. So there is no problem claiming them as dependents and using them to qualify for head of household filing status.

Stop worrying.

[bws92082]

Ok, I'll stop worrying 🙂