Family is so important that our love for them remains strong whether they live close or far from us. That’s why we’ll always be willing to help them out no matter where they are located. Sometimes we’ll mail them big boxes stuffed with gifts and souvenirs for a special occasion during the year or just because we feel like it. But what if your help goes beyond mailing a few boxes with gifts every year?
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Many are willing to offer substantial financial help to their family members living in a foreign country. If that’s your case, now that tax time is here, you’re probably wondering: Do I qualify for any tax break if I help financially my family members living abroad?
For answers to this question and anything else related to your tax situation, TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your answers. TurboTax Live tax experts are also available in English and Spanish, year round, and can even review, sign, and file your tax return or you can fully hand your taxes over to them.
Although TurboTax will give you the tax deductions and credits you’re eligible for, see below what you may qualify for.
What are the basic requirements?
It is true that the IRS may allow taxpayers to claim family members living abroad that they financially support, however, that doesn’t mean that you can automatically deduct all the financial help you provide them. Like any other tax deduction, there are requirements that come along with the tax break. Especially after the Tax Cuts and Jobs Act was passed by Congress late 2017, which changed tax benefits for dependents.
There’s two ways of claiming a dependent: Qualifying Child and Qualifying Relative. The first one mentioned, Qualifying Child, will probably not be an option if your dependent child is not living with you since the dependent child must live with the taxpayer for more than half of the year in order to qualify. On the other hand, if you’re financially supporting your relatives living abroad, you might be able to claim them as Qualifying Relatives if you meet certain requirements.
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What are those requirements? Here are some of them:
- You can only claim a family member that you are financially supporting as a dependent if they are either a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico. So if the family member you are supporting is living abroad in a foreign country other than Canada or Mexico and they are not either a U.S. citizen, U.S. national, U.S. resident alien, you won’t be able to claim them as your Qualifying Relatives on your tax return.
- They also need to meet the Relationship Test. What does that mean? Well, they have to be either one of these: Your child, a legally adopted child, stepchild, foster child, a descendant of any of them (for example, your grandchild), your brother, sister, half brother, half sister, stepbrother, stepsister, your father, mother, grandparent, or other direct ancestor, but not foster parent, your stepfather or stepmother, a son or daughter of your brother or sister, a son or daughter of your half brother or half sister, a brother or sister of your father or mother, your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
- The taxable gross income of the relative you’re supporting must be less than $4,300 in 2020 (this amount will increase for future tax years).
- You as the taxpayer must have provided over half of the relative’s support during the tax year.
Also take into consideration that your relatives will need a tax identification number in order to claim them. That can be a Social Security number or an ITIN (Individual Tax Identification Number), which you can apply for by submitting a W-7 form.
What are the tax benefits?
Although it is true that you can potentially claim your family members living abroad as dependents, claiming a Qualifying Relative won’t qualify you for other benefits related to having a dependent child like filing as Head of Household and some other tax credits related to dependent kids like the Earned Income Tax Credit and the Child Tax Credit. The main tax benefit of being able to claim a family member as a dependent used to be the dependent exemption that, in years prior to Tax Reform, was up to $4,050. However, under tax reform, the dependent exemption was eliminated for tax years 2018-2025.
Now you can claim a new credit called the Other Dependent Credit (ODC) up to $500 for non-child dependents. Unlike the Child Tax Credit, you can claim the Other Dependent Credit if your dependent is your child 17 and over, your child with an ITIN, or other relatives. Under tax reform, your dependent child needs a social security number and not an ITIN in order for you to claim the Child Tax Credit.
If you need to file a tax return for a tax year prior to 2018, you can potentially still claim the family member that you supported and claim a dependent exemption or deduction. Remember, if you want to claim a credit or deduction you missed, you can file within 3 years of the return due date. Still, whether you can claim a tax benefit for the financial help you provide to your family living abroad or not, nothing can take away the joy and satisfaction of helping them.
If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years experience to get your questions answered. TurboTax Live tax experts are available in English and Spanish, year round to answer your questions and can review, sign, and file your return. You can also fully hand over your taxes to a TurboTax Live tax expert and have them do them from start to finish. All from the comfort of your home.