Unlocking the Mystery of the Gross-Income Test
The Gross-Income Test is one of five critical assessments a person must pass to be recognized as a dependent in the United States. This particular test stipulates that dependents cannot have earnings exceeding a specific annual threshold. Crucially, this evaluation pertains only to individuals aged over 19 or over 24 if they are full-time students.
Pinpointing the Yearly Income Threshold
The Gross-Income Test’s maximum allowable income is adjusted annually for inflation and may vary from year to year. For instance, the threshold was $4,300 in 2021, up from $4,000 in 2015, and $3,500 in 2008. It’s vital to reference the current year’s figures before progressing to the other four dependency tests. Failure to meet the Gross-Income Test, or other dependency criteria, disqualifies one from claiming the individual as a dependent for personal exemption purposes. Additionally, qualifying a child as a dependent requires passing a different set of qualifying child dependency tests. Notably, no age limit applies for qualifying relatives, but they are barred from claiming a personal exemption on their tax return if someone else is claiming them as a dependent.
Types of Income Factored into the Gross-Income Test
For the Gross-Income Test, the allowable gross income for a qualifying relative includes all forms of monetary gains and certain non-tax-exempt properties and services. Specific requirements exist for calculating income from merchandising, mining, or manufacturing activities. Here, gross income is determined by subtracting the cost of goods sold from total net sales, then adding any miscellaneous business income.
Gross receipts from renting out properties contribute to gross income, as do individuals’ shares of gross partnership revenue (but not their share of net profits). Other elements considered part of gross income encompass taxable social security benefits, taxable unemployment compensation, and specific fellowship grants and scholarships provided by employers.
A pivotal consideration is that any child support paid by a household member for a child living outside the home is not included in the gross income evaluation. Furthermore, households with elderly or disabled members don’t undergo the Gross-Income Test.
Related Terms: dependent, personal exemption, gross income, qualifying relative, IRS, taxable income
References
- Internal Revenue Service. “Publication 501 (2021): Dependents, Standard Deduction, and Filing Information”, Pages 11-12.
- Internal Revenue Service. “Publication 501 (2021): Dependents, Standard Deduction, and Filing Information”, Page 19.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information (2008)”, Pages 16.
- Internal Revenue Service. “Publication 501: Dependents, Standard Deduction, and Filing Information (2015)”, Page 19.
- Internal Revenue Service. “Publication 501 (2021): Dependents, Standard Deduction, and Filing Information”, Pages 12-13.
- Internal Revenue Service. “Personal Exemptions”, Page 1.
- Internal Revenue Service. “Publication 501 (2021): Dependents, Standard Deduction, and Filing Information”, Page 18.
- Internal Revenue Service. “Publication 501 (2021): Dependents, Standard Deduction, and Filing Information”, Pages 18-19.
- Internal Revenue Service. “Table 2: Qualifying Relative Dependents”, Page 1.
- Internal Revenue Service. “Alimony, Child Support, Court Awards, Damages 1”.
