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Can You Claim Dependents Living in Mexico On a USA Tax Return?

The short answer is yes, but to qualify for the $500 other dependent credit they need to qualify as a qualifying relative and have a valid social security number. 

As a tax preparer or accountant, you may have clients who are U.S. taxpayers with family members living in Mexico. They might wonder whether they can claim these relatives as dependents on their tax returns. Remember, as Tax Pros; we need to do our due diligence. It's essential to understand the rules and requirements for claiming dependents living in Mexico and the differences between qualifying children and relatives.

One crucial point is that only dependents with a valid Social Security Number (SSN) qualify for the other dependent credit; those with an Individual Taxpayer Identification Number (ITIN) do not. 

What's The Difference Between A Qualifying Child from A Qualifying Relative

When advising clients, it's crucial to clarify the term "dependent" in the context of U.S. tax law. A dependent can be either a qualifying child or a qualifying relative. The distinction between the two is essential, as it determines the tests and requirements your clients need to meet to claim someone as a dependent.

 

Qualifying Child: A qualifying child is a person who meets the following criteria. 

  • Relationship: The child must be the taxpayer's son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of these individuals (e.g., grandchild, niece, or nephew).

  • Age: The child must be under age 19 at the end of the year, under age 24 at the end of the year, and a full-time student or any age if permanently and totally disabled.

  • Residency: The child must have lived with the taxpayer for over half the year.

  • Support: The child must have provided only half of their support for the year.

  • Joint Return: The child must not file a joint return for the year unless only to claim a refund of withheld income tax or estimated tax payments.

 

Qualifying Relative: A qualifying relative is a person who meets the following criteria.

  • Not a Qualifying Child: The person cannot be the client's qualifying child or the qualifying child of any other taxpayer.

  • Gross Income Test: The person's annual gross income must be less than $4,400.

  • Support Test: Your client must generally provide more than half of the person's support during the calendar year.

  • Member of Household or Relationship Test: The person must either live with your client all year as a member of their household or be related to them in one of the ways specified by the IRS.

 

Here are the different types of relationships that meet the criteria for the relationship test.

  • Ancestors: These include the taxpayer's parents, grandparents, and great-grandparents.

  • Lineal descendants: These include the taxpayer's children, grandchildren, and great-grandchildren (whether by blood, marriage, or adoption).

  • Siblings: These include the taxpayer's brothers and sisters, half-brothers, half-sisters, stepbrothers, and stepsisters.

  • Stepfamily: These include the taxpayer's stepparents and stepchildren.

  • In-laws: These include the taxpayer's father-in-law, mother-in-law, brother-in-law, sister-in-law, son-in-law, and daughter-in-law.

  • Aunts and uncles: These include the taxpayer's aunts and uncles by blood, but not their spouses.

  • Nieces and nephews: These include the taxpayer's nieces and nephews by blood, but not their spouses.

  • Certain in-law relationships: These include the taxpayer's son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, and sister-in-law.

Exceptions

Even if you have a qualifying child or qualifying relative, you can claim that person as a dependent only if these three tests are met.

1. Dependent taxpayer test.

2. Joint return test.

3. Citizen or Resident test.

For this example, we will focus on the third test: Citizen or Resident Test. You generally can't claim a person as a dependent unless that person is a U.S. citizen, a U.S. resident alien, a U.S. national, or a resident of Canada or Mexico.

Since the dependent lives in Mexico they meet the Citizen or Resident test criteria. 

It's important to note that any relationship established by marriage does not end upon the death of a spouse or divorce. So, for example, if the taxpayer's child got divorced, their former son-in-law or daughter-in-law would still be considered related for this test.

Suppose the person lives with the taxpayer all year as a member of their household and meets the other requirements. In that case, they can still be considered a qualifying relative even if they are not related to the taxpayer in one of the ways specified by the IRS. However, the person must not violate local laws while living with the taxpayer. 

Child Tax Credit

For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. To qualify for this credit, the child must be a U.S. citizen, a U.S. national, or a U.S. resident alien. Beginning in 2018, the child must also have a Social Security Number.

This Means That…. Your dependents in Mexico will NOT be able to claim this credit. They need to live in your household in the United States and have a valid Social Security Number.

Head of Household Filing Status

To be eligible to claim HOH filing status, a taxpayer must:

  • Be unmarried or "considered unmarried" on the last day of the year.
  • Have paid more than half of the cost of keeping up a home for the year.
  • Have a qualifying person live in the taxpayer’s home for more than half the year

However, if the qualifying person is the taxpayer’s dependent parent, he or she does not have to live with the taxpayer. If you are claiming your parents in Mexico for the purposes of qualifying for the HOH filing status, you must: 

  • Provide over 50% of their support
  • Make sure they earn less than $4,150 during the year
  • Make sure they have a valid active ITIN

This Means That…. You can claim your parents who live in Mexico.

Assessing a Client's Eligibility to Claim a Child Living in Mexico

If your client's child lives in Mexico (or Canada), they may be able to claim them as a dependent even if they don't meet the residency test required for a qualifying child. However, the child may still qualify as a qualifying relative, provided certain conditions are met. For instance, if the individuals the child lives with are not U.S. citizens and have no U.S. gross income, they are not considered "taxpayers," meaning the child is not the qualifying child of any other taxpayer.

The child can be the client's qualifying relative if they meet the gross income and support tests.

Remember that a child who lives in a foreign country other than Canada or Mexico cannot be claimed as a dependent unless they are a U.S. citizen, U.S. resident alien, or U.S. national. 

Real-Life Example

Imagine your client is a single U.S. taxpayer with four children, ages 6, 8, 12, and 20, who live in Mexico with their non-U.S. citizen parent. The children have no income, and the parent has no U.S. income. Although the children do not meet the residency test to be your client's qualifying children, they may still be their qualifying relatives if they are not the qualifying children of any other taxpayer. If the children meet the gross income and support tests, your client can claim them as dependents on their tax returns. They may also claim their parents as dependents if they meet the same requirements.

Conclusion 

As a tax preparer or accountant, understanding the rules and requirements for claiming dependents living in Mexico is crucial for providing accurate guidance to your clients. Familiarizing yourself with the tests and conditions can help you assess whether your clients' loved ones qualify as dependents and ensure they are maximizing their tax benefits. When navigating these complex tax regulations, thorough knowledge and attention to detail are essential for delivering top-quality service to your clients.

 

Written by:

Alberto Contreras, former CRO of Latino Tax Pro

 

Sources:

https://www.irs.gov/pub/irs-pdf/p501.pdf

https://www.irs.gov/newsroom/an-overview-of-the-credit-for-other-dependents

https://apps.irs.gov/app/vita/content/globalmedia/4491_dependency_exemptions.pdf