Tax Break for Supporting Poor Mexican or Canadian Relatives

Everyone who has filed a tax return has noticed the section devoted to claiming "dependents," each one of which reduces the taxpayer's taxable income by around $4,000.

Pets do not count as dependents.  Normally, only US citizens and US residents can be claimed as dependents, but Internal Revenue Code section 152(b)(3)(A) provides that a dependent can be a resident of Canada or Mexico, without having to be a citizen or resident of the United States.

Technically, the rule applies to residents of any country "contiguous" to the United States.
In contrast, foreigners who are residents of other countries cannot be claimed as dependents for tax purposes, no matter how dependent they are on the taxpayer for real life purposes.  In a 1970 case called Hoyle, for example, the taxpayer was not allowed to claim as dependents his three children who lived in the UK (and who were not US citizens). 

The Canadian or Mexican can qualify as a dependent in several ways.  For someone who doesn't live with the taxpayer, the easiest way to qualify is under the"qualifying relative" test:
1. The dependent has less than ~$3,800 of gross income during the year,
2. The taxpayer provides over half of the dependent's financial support during the year,
3. The dependent generally is not a dependent for US tax purposes of another US taxpayer,
4. The dependent is related to the taxpayer as a child, stepchild, other descendant, sibling (including step- and half-sibling), parent, step-parent, other ancestor, nephew/niece, aunt/uncle, or son/daughter/father/mother/brother/sister-in-law of the taxpayer, and
5. The dependent can be of any age.

A US taxpayer who supports a large family of low-income Canadians can save quite a bundle. 

(There are other exceptions for young adopted children and for certain nonresident aliens filing US tax returns, which future posts may cover.)

§ 152 Dependent defined.

 (a) In general.
For purposes of this subtitle, the term “dependent” means—

(1) a qualifying child, or

(2) a qualifying relative.

(b) Exceptions.
For purposes of this section —

(1) Dependents ineligible.
If an individual is a dependent of a taxpayer for any taxable year of such taxpayer beginning in a calendar year, such individual shall be treated as having no dependents for any taxable year of such individual beginning in such calendar year.

(2) Married dependents. An individual shall not be treated as a dependent of a taxpayer under subsection (a) if such individual has made a joint return with the individual's spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.

(3) Citizens or nationals of other countries.

(A) In general. The term “dependent” does not include an individual who is not a citizen or national of the United States unless such individual is a resident of the United States or a country contiguous to the United States.

(B) Exception for adopted child. Subparagraph (A) shall not exclude any child of a taxpayer (within the meaning of subsection (f)(1)(B) ) from the definition of “dependent” if—

(i) for the taxable year of the taxpayer, the child has the same principal place of abode as the taxpayer and is a member of the taxpayer's household, and

(ii) the taxpayer is a citizen or national of the United States.

(c) Qualifying child.

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(d) Qualifying relative.
For purposes of this section —

(1) In general.
The term “qualifying relative” means, with respect to any taxpayer for any taxable year, an individual—

(A) who bears a relationship to the taxpayer described in paragraph (2) ,

(B) whose gross income for the calendar year in which such taxable year begins is less than the exemption amount (as defined in section 151(d) ),

(C) with respect to whom the taxpayer provides over one-half of the individual's support for the calendar year in which such taxable year begins, and

(D) who is not a qualifying child of such taxpayer or of any other taxpayer for any taxable year beginning in the calendar year in which such taxable year begins.

(2) Relationship.
For purposes of paragraph (1)(A), an individual bears a relationship to the taxpayer described in this paragraph if the individual is any of the following with respect to the taxpayer:

(A) A child or a descendant of a child.

(B) A brother, sister, stepbrother, or stepsister.

(C) The father or mother, or an ancestor of either.

(D) A stepfather or stepmother.

(E) A son or daughter of a brother or sister of the taxpayer.

(F) A brother or sister of the father or mother of the taxpayer.

(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

(H) An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer's household.

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