Survivor benefits and claiming dependents

[MsMi]

Hi, I’m looking for guidance on whether I can claim my children as dependents. Myself and my children each receive social security survivor benefits due to the death of my husband/their father. Their benefits come to me but in the kids’ names. Since their benefits do come in their names is it considered that the kids are supporting themselves or is it considered their parent supporting them because it is in lieu of their father’s income? I saw an IRS form stating that Social security benefits in a child’s name is considered the child supporting themselves but every tax professional I speak with is telling me this is not the case due to the social security being received due to passing of their father. I would love some clarity. 

[xmasbaby0]

Do not enter the SSA1099 for your child on your own tax return.   Someday if the child has other income  (after school job, etc.) and is filing a tax return, for that tax year he will need to include the SSA1099 on his own return.  Until then, it does not get entered anywhere.

[ThomasM125]

This issue is who provides over half of the children's support. They are not required to use their income for their support. If you pay the bills for items of their support such as food and housing, you need to provide over half of such support for the year for them to qualify as your dependent, as far as the support test is concerned.

[DoninGA]

You do not enter the child's Social Security benefits on your tax return.  If the child has no other income they do not have to file a tax return for the SS benefits received.

The child's SS benefits in no way have the capability to provide over one-half of their own support for the entire year.

If the children are under the age of 19 then you can claim them on your tax return under the Qualifying Child rules.

To be a Qualifying Child -

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student or (c) any age and permanently and totally disabled.
3. The child must have lived with you for more than half of the year. Temporary absences while away at college are considered living with you.
4. The child must not have provided more than half of his or her own support for the year.
5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.
6. The child must be a U.S. citizen or U.S., Canada or Mexico resident for some portion of the year.
7. The child must be younger than you unless disabled.

[LShaw]

​The short answer is that the IRS's official position is that taxable SSA benefits are the income of the child.  If the entire amount is spent on support, it's considered paid by the child.  If you put their check in a savings account for them instead of spending it, it's not used for their support.

The problem your advisors are having with pointing you to the source for this rule is that there is no provision of the tax code that says, "social security survivor benefits received by a child on his or her deceased parent's work record are considered income provided by the child for the support test in determining if the child is the qualifying child of the surviving parent."  The closest authority for it is the regulations under code section 152 defining "dependent."  They say that if a taxpayer wants to claim a PARENT as a dependent, then the PARENT's SSA income is counted as provided by the parent for the support test to determine if the parent is a qualifying relative.  This makes sense because the parent's SSA income would normally be based on his or her own work record, or on the work record of a spouse, and not on the work record of the taxpayer.  So the taxpayer didn't provide it.  But when it's your own child, this isn't so obvious or intuitive.  Social Security child's benefits are based on the child's parent's work record, so technically, the deceased, disabled, or retired parent who paid FICA taxes into the system provided that benefit.  Congress didn't address SSA childs' benefits earned by the parent in the law, and the IRS very carefully side-stepped addressing this issue directly in the regulations and the regs don't provide any guidance on it at all.   (only the parent-as-dependent issue was addressed)

Nevertheless, the IRS's official position is that taxable social security benefits are considered as provided by the child, even if they're based on the parent's work record.  You can find that position in IRS Publications and instructions (but not in the law, a revenue ruling or a regulation).  (Also be careful about what kind of payments you're counting.  SSI (supplemental security income) has a confusingly similar name, but it is government assistance to the poor, not taxable SSA benefits and those are not counted.)

There are (at least) 2 IRS Publications that explain rules for dependents in plain English.

     Pub 501 covers dependents, standard deduction and filing info.   

     Pub 929 covers specifically tax rules for children and dependents.

I've included links below to both, and to a list of all available IRS publications.  Since you seem so interested in the source for the rule, I'm also including a link to the dependent regulations if you really want to do a deep dive and see where that language about social security benefits being included comes from.

That said, here is the IRS official position.  First, download Pub 501 from the IRS website.  Link here:  2024 Publication 501  There are 2 different "dependent" tests.  

  1. Qualifying child or

  2. Qualifying relative

Pub 501 at page 11 explains there are 5 tests you must meet for a child to be your qualifying child for purposes of determining whether they are a "dependent."  The support test to be a qualifying child is different from the one to be a qualifying relative.  However, the determination of what is or isn't "support" is the same for both tests.  (see page 14)

The support test to be a qualifying relative starts on page 19.  On page 20, it specifically states that: 

     "If a child receives social security benefits
     and uses them toward their own support, the
     benefits are considered as provided by the child."

So there you have it, this is where you can find the IRS's position on the issue.  As noted above, the controlling issue is "and uses them toward their own support."  

Whether or not your child provided more than half his or her support is a question of adding up all the expenses of providing and running your household and seeing where the chips fall.  A surviving spouse gets 100% of the deceased worker's benefit amount, and surviving children each get 75% of the PIA so you're already starting with having a bigger benefit to contribute toward the total cost of support than your child(ren). There is also a family maximum of between150% and 180% of the benefit amount.  If you have more than one child, once you hit the maximum amount, everyone's benefit gets reduced proportionately.  The more children you have, the smaller their individual slices will be to contribute toward their own support.

If you work or have other sources of income as well, your other income also supports the household and gets counted toward what you provide. You count everything you're laying out for their total support.  This includes housing (mortgage or rent, utilities, RE taxes, insurance, maintenance), furnishings, transportation, health insurance & health care and so on. Even if you own your home outright and don't have rent or a mortgage, you count the fair rental value of a furnished home as going toward their support. It's amazing how expensive it is to put a roof over a child's head and their benefit check really isn't going to go that far.  But run the numbers and keep them in a spreadsheet or list with your tax return.  Just in the very remote chance you get audited, you can show where you got your numbers.  It's better to make that list while the info is fresh than try and reconstruct it 2 years later.  Just sayin.

IRS Publications

Turbotax doesn't like my links.  Navigate to www.irs.gov/publications and download from there. You can also run a search on specific topics at www.IRS.gov to get what you need.

 IRS page with information about dependents:   Dependents | Internal Revenue Service

IRS list of all available Pubs --  https://www.irs.gov/publications 

2024 Publication 501  pdf version

Publication 501 (2024), Dependents, Standard Deduction, and Filing Information | Internal Revenue Se...  html version

2021 Publication 929  pdf version

Publication 929 (2021), Tax Rules for Children and Dependents | Internal Revenue Service   html version

Treasury regulations  § 1.152-1 General definition of a dependent. -- https://www.ecfr.gov/current/title-26/section-1.152-1