It use to be cut and dry that, when your child got married, graduated from college, joined the Army or in general, moved out of your home they were no longer a dependent. This isn’t the case anymore. The new Health Care reform bill has made it mandatory that your children be covered on your insurance up to the age of 26, even if they have children of their own. But what does that mean for your taxes?
Despite the new requirement to carry health insurance for this adult child, they may not be your dependent. The IRS does not consider an adult child to be a dependent (even if you provide their insurance). There are a few exceptions to this. If the child is disabled or in college they can be claimed until they turn 24. Like everything else with the IRS there are exceptions to this. If your child lives at home and you provide more than ½ of their living expenses (this includes such things as date night money and other entertainment expenses) it is possible to claim that child as a dependent. The child has to make less than the standard deduction and they can only file a tax return to get any withholding back. In other words they cannot make enough money to be required to pay taxes. They can be married, but they still have to make under the standard deduction and they can’t be claimed by their spouse.
What is interesting is that there is no minimum age for a parent to be to be claimed by their child as a dependent. In other words, you may be required to pay the child’s insurance, but you may actually be a dependent on their tax return. Then of course, the parent would have to meet the requirement of having their child pay at least ½ of the parents living expenses. This would be extremely difficult if they are also paying the insurance for the child. It is not required that an adult child who claims his parents as a dependent for taxes has to also supply insurance for the parents though.
According to the current administration, this was all done to simplify the tax system and at the same time make sure that all Americans had health insurance.