You may qualify to claim your niece and nephew as dependents as long as you provide at least half of the child's support and meet other requirements for claiming a dependent. You can add them to your return as a dependent in the same way you claim a child as a dependent. A legal guardian is considered the same as a foster parent for tax purposes.
A qualifying child is one who meets the following six tests [IRC Sec. 152(c)]:
- Relationship.
- Age.
- Residency.
- Support.
- Joint return.
- Tie-breaker test if the child is the qualifying child of more than one person.
Relationship test. The child must be the taxpayer’s:
•Son, daughter, stepchild, eligible foster child, or a descendant of any of them (for example, grandchild) or
•Brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them (for example, niece or nephew).
Adopted child. An individual legally adopted by the taxpayer or an individual lawfully placed with the taxpayer for legal adoption is treated as a child by blood.
Eligible foster child. An eligible foster child is one placed with the taxpayer by an authorized placement agency or by judgment, decree or other order of any court of competent jurisdiction.
Age test. The child must be either:
•Under age 19 at the end of the year and younger than the taxpayer (or spouse if MFJ).
•Under age 24 at the end of the year, a full-time student and younger than the taxpayer (or spouse if MFJ). A full-time student is one who is enrolled full-time in school (but not online or correspondence schools) during any part of five calendar months during 2021 or took a full-time course of institutional on-farm training under the supervision of an accredited agency. In Ltr. Rul. 9838027, the IRS allowed the taxpayer to count the month of August when a student registered on August 28 but did not start classes until September 2.
•Any age if totally and permanently disabled.
Residency test. The child must have the same principal residence as the taxpayer for more than half of the tax year. Temporary absences due to special circumstances, including absences due to illness, education, business, vacation, or military service, are ignored.
Support test. The child cannot provide over half of his own support. A full-time student does not take into account taxable or nontaxable scholarship payments received in calculating the support test.
No joint return test. If married, the child must not have filed a joint return. Exception: If the only reason for filing a joint return is to claim a refund, the child meets the test.
Tie-breaker rules—qualifying child of more than one person. It’s possible that a child is the qualifying child of more than one person. In that case, the tie-breaker rules determine who can claim the child as their qualifying child (QC) [IRC Sec. 152(c)(4)].
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