us internal revenue service: p501--1998

8/14/2019 US Internal Revenue Service: p501--1998

1/19

ContentsImportant Changes ............................ 1

Important Reminders ......................... 2

Introduction ........................................ 2

Who Must File? .................................. 2

Who Should File? ............................... 4

Filing Status ........................................ 4

Exemptions ......................................... 8

Standard Deduction ........................... 161998 Standard Deduction Tables ... 17

How To Get More Information .......... 18

Index .................................................... 19

Important ChangesWho must file? Generally, the amount ofincome you can receive before you must filea return has increased. Table 1 shows the

filing requirements for most taxpayers.

Social security numbersprotecting yourprivacy. If you received your tax package inthe mail, the peel-off label that came with thepackage no longer has your SSN(s) printedon it. Therefore, be sure to enter your SSN(s)in the space provided on your tax form.

If you filed a joint return last year and arefiling a joint return this year with the samespouse, be sure to enter your names andSSNs in the same order as on your last year'sreturn.

Exemption amount. The amount you candeduct for each exemption has increasedfrom $2,650 in 1997 to $2,700 in 1998.

Exemption phaseout. You will lose all orpart of the benefit of your exemptions if youradjusted gross income is above a certainamount. The amount at which this phaseoutbegins depends on your filing status. For1998, the phaseout begins at $93,400 formarried persons filing separately; $124,500for unmarried individuals; $155,650 for headsof household; and at $186,800 for marriedpersons filing jointly. See Phaseout of Ex-emptions, later.

Standard deduction. The standard de-duction for taxpayers who do not itemize de-ductions on Schedule A of Form 1040 ishigher in 1998 than it was in 1997. Theamount depends upon your filing status. The1998 Standard Deduction Tablesare shownlater as Tables 7, 8, and 9.

Standard deduction for dependents. Theminimum standard deduction for dependentshas increased from $650 for 1997 to $700 for1998. Also, the standard deduction for manydependents with earned income has in-creased. Table 9 is used to figure this de-duction.

Itemized deductions. The amount you candeduct for itemized deductions is limited ifyour adjusted gross income is more than$124,500 ($62,250 if you are married filingseparately). See Who Should Itemize, later.

Departmentof theTreasury

InternalRevenueService

Publica tion 501Cat. No. 15000U

Exemptions,StandardDeduction,and FilingInformation

For use in preparing

1998 Returns


2/19

Innocent spouse relief. Recent legislationchanged the innocent spouse relief rules andprovided two other ways to obtain relief from

joint liability. For details see Joint responsi-bilityunder Married Filing Jointly.

Important Reminders

Social security number for dependents.You must list either the social security number(SSN), individual taxpayer identification num-ber (ITIN), or adoption taxpayer identificationnumber (ATIN) of every person for whom youclaim an exemption.

If you do not list the dependents SSN,ITIN, or ATIN, the exemption may be disal-lowed. See Social Security Numbers for De-pendents, later.

Election to claim child's unearned incomeon parent's return. You may be able to in-clude your child's interest and dividend in-come on your tax return by using Form 8814,Parents' Election To Report Child's Interestand Dividends. If you choose to do this, yourchild will not file a return.

IntroductionThis publication discusses some tax rules thataffect every person who may have to file afederal income tax return. It answers somebasic questions: who must file; who shouldfile; what filing status to use; how many ex-emptions to claim; and the amount of thestandard deduction.

The first section of this publication ex-plains who must file an income tax return. Ifyou have little or no gross income, readingthis section will help you decide if you haveto file a return.

The second section is about who should

file a return. Reading this section will help youdecide if you should file a return, even if youare not required to do so.

The third section helps you determinewhich filing status to use. Filing status isimportant in determining whether you mustfile a return, your standard deduction, andyour tax rate. It also helps determine whatcredits you may be entitled to.

The fourth section discusses exemptions,which reduce your taxable income. The dis-cussions include the social security numberrequirement for dependents, the rules formultiple support agreements, and the rules fordivorced or separated parents.

The fifth section gives the rules and dollaramounts for the standard deduction abenefit for taxpayers who do not itemize theirdeductions. This section also discusses thestandard deduction for taxpayers who areblind or age 65 or older, and special rules fordependents. In addition, this section shouldhelp you decide whether you would be betteroff taking the standard deduction or itemizingyour deductions.

The last section explains how to get helpfrom the IRS.

This publication is for U.S. citizens andresident aliens only. If you are a resident alienfor the entire year, you must follow the sametax rules that apply to U.S. citizens. The rulesto determine if you are a resident or nonresi-dent alien are discussed in chapter 1 of Pub-lication 519, U.S. Tax Guide for Aliens.

Nonresident aliens. If you were a nonresi-dent alien at any time during the year, therules and tax forms that apply to you may bedifferent from those that apply to U.S. citi-zens. See Publication 519.

Useful ItemsYou may want to see:

Publication

559 Survivors, Executors, and Admin-

istrators 929 Tax Rules for Children and De-

pendents

Form (and Instructions)

1040XAmended U.S. Individual IncomeTax Return

2848 Power of Attorney and Declarationof Representative

8332 Release of Claim to Exemption forChild of Divorced or SeparatedParents

8814 Parents' Election To ReportChild's Interest and Dividends

Who Must File?If you are a U.S. citizen or resident, whetheryou must file a federal income tax return de-pends upon your gross income, your filingstatus, your age, and whether you are a de-pendent. You must also file if one of the situ-ations described under Other Situations ap-plies. The filing requirements apply even ifyou owe no tax.

You may have to pay a penalty if you arerequired to file a return but fail to. If you

wilfully fail to file a return, you may be subjectto criminal prosecution.

For information on what form to use Form 1040EZ, Form 1040A, or Form 1040

see the instructions in your tax package.

Gross income. Gross income is all incomeyou receive in the form of money, goods,property, and services that is not exempt fromtax. If you are married and live with yourspouse in a community property state, halfof any income defined by state law as com-

munity income may be considered yours. Fora list of community property states, seeCommunity property states under SeparateReturns, later.

Self-employed persons. If you are self-employed in a business that provides services(where products are not a factor), gross in-come is gross receipts from that business. Ifyou are self-employed in a business involvingmanufacturing, merchandising, or mining,gross income is total sales from that businessminus the cost of goods sold. To this figure,you add any income from investments andfrom incidental or outside operations orsources.

TIP

You must file Form 1040 if you oweany self-employment tax.

Filing status. Your filing status generallydepends on whether you are single or mar-ried. In some cases, it depends on other fac-tors as well. Whether you are single or mar-ried is determined as of the last day of yourtax year, which is December 31 for most tax-payers. Filing status is discussed in detaillater in this publication.

Age. Age is a factor in determining if youmust file a return only if you are 65 or olderat the end of your tax year. You are consid-

Table 1. 1998 Filing Requirements Chart for Most Taxpayers

If your Filing Status is:And at the endof 1998 you were:*

Then file a return ifyour Gross incomewas at least:**

Single under 65 $6,950

65 or older $8,000

Head of household under 65 $8,950

65 or older $10,000

Married, filing jointly*** 65 or older (one spouse) $13,350

65 or older (both spouses) $14,200

under 65 (both spouses) $12,500

Married, filing separately any age $2,700

Qualifying widow(er) withdependent child

under 65 $9,800

65 or older $10,650

* If you turned age 65 on January 1, 1999, you are considered to be age 65 at the end of 1998.

** Gross incomemeans all income you received in the form of money, goods, property, andservices that is not exempt from tax, including any income from sources outside the UnitedStates (even if you may exclude part or all of it). Do not include social security benefits unlessyou are married filing a separate return and you lived with your spouse at any time in 1998.

*** If you didnt live with your spouse at the end of 1998 (or on the date your spouse died) andyour gross income was at least $2,700, you must file a return regardless of your age.

Page 2


3/19

ered to be age 65 for 1998 if your 65th birth-day is on or before January 1, 1999.

Filing Requirementsfor Most TaxpayersYou must file a return if your gross income forthe year was at least the amount shown onthe appropriate line in Table 1. Dependentsshould see Dependents, later.

Deceased PersonsYou must file an income tax return for a de-cedent (a person who died) if:

1) You are the surviving spouse, executor,administrator, or legal representative,and

2) The decedent met the filing requirementsat the time of his or her death.

For more information, see Final Return forDecedentin Publication 559.

U.S. Citizens orResidents Living Abroad

For purposes of determining whether youmust file a return, you must include in yourgross income all of the income you earnedabroad, including any income you can ex-clude under the foreign earned income ex-clusion. For more information on special taxrules that may apply to you, see Publication54, Tax Guide for U.S. Citizens and ResidentAliens Abroad.

Residents of Puerto RicoGenerally, if you are a U.S. citizen and aresident of Puerto Rico, you must file a U.S.income tax return if you meet the income re-quirements. This is in addition to any legalrequirement you may have to file an incometax return with Puerto Rico.

If you are a resident of Puerto Rico for thewhole year, your U.S. gross income does notinclude income from sources within PuertoRico. However, include in your U.S. gross in-come any income you received for your ser-vices as an employee of the United Statesor any U.S. agency. If you receive incomefrom Puerto Rican sources that is not subjectto U.S. tax, you must make a special adjust-ment for your standard deduction to arrive atthe income level for your requirement to filea U.S. income tax return.

For more information, see Publication 570,Tax Guide for Individuals With Income FromU.S. Possessions.

DependentsA person who is a dependent may still haveto file a return. This depends on whether thedependent has earned income, unearned in-come, or both. A dependent may also haveto file if one of the situations described inTa-ble 3applies.

Earned income. This is salaries, wages,professional fees, and other amounts re-ceived as pay for work you actually perform.Earned income (only for purposes of filingrequirements and the standard deduction)also includes any part of a scholarship thatyou must include in your gross income. SeePublication 520, Scholarships and Fellow-

Table 2. 1998 Filing Requirements for Dependents

If your parent (or someone else) can claim you as a dependent, use this table to see if youmust file a return.

Single dependentsWere you either age 65 or older or blind?

No. You must file a return if any of the following apply.

SeeExemptions for Dependentsto find out if you are a dependent.

In this table, unearned income includes taxable interest and dividends. Earned incomeincludes wages, tips, and taxable scholarship and fellowship grants.

Caution: If your gross income was $2,700 or more, you usually cannot be claimed as adependent unless you were under age 19 or a student under age 24. For details, seeGross Income TestunderExemption Tests.

PLUS $700 or Your earned income (up to $4,000) plus $250

$1,050 ($2,100 if 65or older and blind)

The larger of: This amount:

Married dependentsWere you either age 65 or older or blind?

No. You must file a return if any of the following apply.

Yes. You must file a return if any of the following apply.

PLUS $700 or $850 ($1,700 if 65or older and blind)

The larger of: This amount:

Your gross income was at least $5 and your spouse files a separate return anditemizes deductions.

Your earned income was over $4,400 ($5,250 if 65 or older and blind), Your unearned income was over $1,550 ($2,400 if 65 or over and blind), Your gross income was at least $5 and your spouse files a separate return and

itemizes deductions. Your gross income was more than

Your unearned income was over $1,750 ($2,800 if 65 or over and blind), Your gross income was more than

Yes. You must file a return if any of the following apply. Your earned income was over $5,300 ($6,350 if 65 or older and blind),

Your earned income was more than $4,250. Your unearned income was more than $700. Your gross income was more than the larger of $700, or Your earned income (up to $4,000) plus $250.

Your earned income was more than $3,550. Your unearned income was more than $700. Your gross income was more than the larger of $700, or Your earned income (up to $3,300) plus $250.

Your earned income (up to $3,300) plus $250

ships, for more information on taxable andnontaxable scholarships.

Unearned income. This is income such asinterest, dividends, and capital gains. Trustdistributions of interest, dividends, capitalgains, and survivor annuities are consideredunearned income also.

Election to report child's unearned income

on parents' return. You may be able to in-clude your child's interest and dividend in-come on your tax return. If you choose to dothis, your child will not have to file a return.However, allof the following conditions mustbe met.

1) Your child was under age 14 on January1, 1999.

2) Your child had gross income only frominterest and dividends (including AlaskaPermanent Fund Dividends).

3) The interest and dividend income wasless than $7,000.

4) No estimated tax payment was made for1998 and no 1997 overpayment wasapplied to 1998 under your child's nameand social security number.

5) No federal income tax was withheld fromyour child's income under the backupwithholding rules.

6) You are the parent whose return mustbe used when making the election toreport your child's unearned income.

For more information, see Parent'sElection To Report Child's Interest and Divi-dendsin Publication 929, and Form 8814.

Other SituationsYou may have to file a tax return even if yourgross income is less than the amount shownearlier for your filing status. See Table 3 forother situations when you must file.

If you are a U.S. citizen who lived in a U.S.possession or had income from a U.S. pos-session, different rules apply. Get Publication570.

Page 3


4/19

Table 3. Other Situations When You Must File a 1998 Return

If any of the four conditions listed below applied to you for 1998, you must file a return.

1. You owe any special taxes, such as:

Social security and Medicare tax on tips you did not report to your employer.

Uncollected social security and Medicare or RRTA tax on tips you reported to youremployer.

Uncollected social security and Medicare or RRTA tax on group-term life insurance.

Alternative minimum tax.

Tax on a qualified retirement plan, including an individual retirement arrangement(IRA), or on a medical savings account (MSA).

Recapture taxes (See the Form 1040 instructions for line 56).

2. You received any advance earned income credit (AEIC) payments from your employer.These payments should be shown in box 9 of your Form W-2.

3. You had net earnings from self-employment of at least $400.

4. You had wages of $108.28 or more from a church or qualified church-controlledorganization that is exempt from employer social security and Medicare taxes.

Considered married. You are consid-ered married for the whole year if on the lastday of your tax year you and your spousemeet any one of the following tests.

1) You are married and living together ashusband and wife.

2) You are living together in a common lawmarriagethat is recognized in the statewhere you now live or in the state wherethe common law marriage began.

3) You are married and living apart, but notlegally separated under a decree of di-vorce or separate maintenance.

4) You are separated under an interlocutory(not final) decree of divorce. For pur-poses of filing a joint return, you are notconsidered divorced.

Spouse died during the year. If yourspouse died during the year, you are consid-ered married for the whole year for filing sta-tus purposes.

If you did not remarry before the end of thetax year, you can file a joint return for yourselfand your deceased spouse. For the next 2years, you may be entitled to the specialbenefits described later under Qualifying

Widow(er) With Dependent Child.If you remarried before the end of the taxyear, you can file a joint return with your newspouse. Your deceased spouse's filing statusis married filing separately for that year.

Married persons living apart. If you liveapart from your spouse and meet certaintests, you may be considered unmarried. Ifthis applies to you, you can file as head ofhousehold even though you are not divorcedor legally separated. If you qualify to file ashead of household instead of as married filingseparately, your standard deduction will behigher. Also, your tax may be lower, and youmay be able to claim the earned incomecredit. See Head of Household, later.

SingleYour filing status is single if you are unmar-ried or considered unmarried on the last dayof the year, and you do not qualify for anotherfiling status. To determine your marital statuson the last day of the year, see Marital Status,earlier.

Your filing status may be single if you werewidowed before January 1, 1998, and did notremarry in 1998. However, you might be ableto use another filing status that will give youa lower tax. See Head of Household andQualifying Widow(er) With Dependent Child,later, to see if you qualify.

How to file. You can file Form 1040EZ (if youhave no dependents, are under 65 and notblind, and meet other requirements), Form1040A, or Form 1040. If you file Form 1040Aor Form 1040, show your filing status as sin-gle by checking the box on line 1. Use theSinglecolumn of the Tax Table, or ScheduleXof the Tax Rate Schedules, to figure yourtax.

Married Filing JointlyYou can choose married filing jointly asyour filing status if you are married and bothyou and your spouse agree to file a joint re-turn. On a joint return, you report your com-bined income and deduct your combined al-lowable expenses.

Who Should File?

Even if you do not meet any of the filing re-quirements discussed earlier, you shouldfilea tax return if one of the following applies.

1) You had income tax withheld from yourpay. By filing a return, you can get a re-fund, even if you are the dependent ofanother taxpayer.

2) You qualify for the earned income credit.See Publication 596, Earned IncomeCredit, for more information.

3) You qualify for the additional child taxcredit. See the instructions in your taxforms package for more information onthis credit.

Filing StatusYou use your filing status in determining yourfiling requirements, standard deduction (dis-cussed later), and correct tax. You figure yourcorrect tax by using the Tax Rate Scheduleor the column in the Tax Table that appliesto your filing status.

You also use your filing status in deter-mining whether you are eligible to claim cer-tain other deductions and credits.

There are five filing statuses:

Single,

Married Filing Jointly,

Married Filing Separately,

Head of Household, and

Qualifying Widow(er) With DependentChild.

If more than one filing status applies to you,choose the one that will give you the lowesttax.

Marital StatusIn general, your filing status depends onwhether you are considered unmarried or

married. A marriage means only a legal unionbetween a man and a woman as husbandand wife.

Unmarried persons. You are consideredunmarried for the whole year if, on the lastday of your tax year, you are unmarried orlegally separated, according to your state law,from your spouse under a divorce or a sepa-rate maintenance decree.

Divorced persons. State law governswhether you are married, divorced, or legallyseparated under a decree of separate main-tenance. If you are divorced under a finaldecree by the last day of the year, you areconsidered unmarried for the whole year.

Divorce and remarriage. If you obtain adivorce in one year for the sole purpose offiling tax returns as unmarried individuals, andat the time of divorce you intended to and didremarry each other in the next tax year, youand your spouse must file as married individ-uals.

Annulled marriages. If you obtain acourt decree of annulment, which holds thatno valid marriage ever existed, you are con-sidered unmarried even if you filed joint re-turns for earlier years. You must file amendedreturns (Form 1040X, Amended U.S. Individ-ual Income Tax Return) claiming single orhead of household status for all tax years af-fected by the annulment that are not closedby the statute of limitations for filing a tax re-turn. The statute of limitations generally does

not expire until 3 years after your original re-turn was filed.

Head of household or qualifyingwidow(er) with dependent child. If you areconsidered unmarried, you may be able to fileas a head of household or as a qualifyingwidow(er) with a dependent child. See Headof Householdand Qualifying Widow(er) WithDependent Childto see if you qualify.

Married persons. If you are consideredmarried for the whole year, you and yourspouse can file a joint return, or you can fileseparate returns.

Page 4


5/19

If you and your spouse decide to file a jointreturn, your tax may be lower than yourcombined tax for the other filing statuses.Also, your standard deduction (if you do notitemize deductions) may be higher, and youmay qualify for tax benefits that do not applyto other filing statuses. You can file a jointreturn even if one of you had no income ordeductions.

TIP

If you and your spouse each have in-come, you may want to figure your taxboth on a joint return and on separate

returns (using the filing status of married filingseparately). Choose the method that givesthe two of you the lower combined tax.

How to file. If you file as married filing jointly,you can use Form 1040EZ (if you have nodependents, are under 65 and not blind, andmeet other requirements), Form 1040A, orForm 1040. If you file Form 1040A or Form1040, show this filing status by checking thebox on line 2. Use the Married filing jointlycolumn of the Tax Table, or Schedule Y1 ofthe Tax Rate Schedules, to figure your tax.

Spouse died during the year. If yourspouse died during the year, you are consid-

ered married for the whole year and canchoose married filing jointly as your filingstatus.

Divorced persons. If you are divorced undera final decree by the last day of the year, youare considered unmarried for the whole yearand you cannot choose married filing jointlyas your filing status.

Filing a Joint ReturnBoth you and your spouse must include allof your income, exemptions, and deductionson your joint return.

Accounting period. Both of you must usethe same accounting period, but you can usedifferent accounting methods.

Joint responsibility. Both of you may beheld responsible, jointly and individually, forthe tax and any interest or penalty due onyour joint return. One spouse may be heldresponsible for all the tax due even if all theincome was earned by the other spouse.

Divorced taxpayer. You may be heldjointly and individually responsible for any tax,interest, and penalties due on a joint returnfiled before your divorce. This responsibilitymay apply even if your divorce decree statesthat your former spouse will be responsiblefor any amounts due on previously filed jointreturns.

Relief from joint responsibility. In somecases, one spouse may be relieved of jointliability for tax, interest, and penalties on a

joint return for items of the other spousewhich were incorrectly reported on the jointreturn. You can ask for relief no matter howsmall the liability.

There are three types of relief available.

1) Innocent spouse relief, which applies toall joint filers.

2) An election to allocate a deficiency,which applies to joint filers who are di-vorced, widowed, legally separated, or

who have not lived together for the past12 months.

3) Equitable relief, which applies to all jointfilers and married couples filing separatereturns in community property states.

You must file Form 8857 to request anyof these kinds of relief. Publication 971 ex-plains these kinds of relief and who mayqualify for them.

Signing a joint return. For a return to beconsidered a joint return, both husband andwife must generally sign the return.

Spouse died before signing. If yourspouse died before signing the return, theexecutor or administrator must sign the returnfor your spouse. If neither you nor anyoneelse has yet been appointed as executor oradministrator, you can sign the return for yourspouse and write Filing as survivingspouse in the area where you sign the return.

Spouse away from home. If your spouseis away from home, you should prepare thereturn, sign it, and send it to your spouse tosign so that it can be filed on time.

Injury or disease prevents signing. Ifyour spouse cannot sign because of diseaseor injury and tells you to sign, you can signyour spouse's name in the proper space onthe return followed by the words By (yourname), Husband (or Wife). Be sure to alsosign in the space provided for your signature.Attach a dated statement, signed by you, tothe return. The statement should include theform number of the return you are filing, thetax year, the reason your spouse cannot sign,and that your spouse has agreed to yoursigning for him or her.

Signing as guardian of spouse. If youare the guardian of your spouse who is men-tally incompetent, you can sign the return foryour spouse as guardian.

Spouse in combat zone. If your spouseis unable to sign the return because he or she

is serving in a combat zone, such as thePersian Gulf Area, or a qualified hazardousduty area (Bosnia and Herzegovina, Croatia,and Macedonia), and you do not have apower of attorney or other statement, you cansign for your spouse. Attach a signed state-ment to your return that explains that yourspouse is serving in a combat zone. For moreinformation on special tax rules for personswho are serving in a combat zone, get Publi-cation 3, Armed Forces' Tax Guide.

Other reasons spouse cannot sign. Ifyour spouse cannot sign the joint return forany other reason, you can sign for yourspouse only if you are given a valid power ofattorney (a legal document giving you per-mission to act for your spouse). Attach the

power of attorney (or a copy of it) to your taxreturn. You can use Form 2848.

Nonresident alien or dual-status alien. Ajoint return generally cannot be made if eitherspouse is a nonresident alien at any timeduring the tax year. However, if one spousewas a nonresident alien or dual-status alienwho was married to a U.S. citizen or residentat the end of the year, the spouses canchoose to file a joint return. If you do file a

joint return, you and your spouse are bothtreated as U.S. citizens or residents for theentire tax year. See chapter 1 of Publication519.

Married Filing SeparatelyYou can choose married filing separatelyas your filing status if you are married. Thismethod may benefit you if you want to be re-sponsible only for your own tax or if thismethod results in less tax than a joint return.If you and your spouse do not agree to file a

joint return, you may have to use this filingstatus.

If you live apart from your spouse andmeet certain tests, you may be consideredunmarried and may be able to file as head

of household. This can apply to you even ifyou are not divorced or legally separated. Ifyou qualify to file as head of household, in-stead of as married filing separately, your taxmay be lower, you may be able to claim theearned income credit and certain other cred-its, and your standard deduction will behigher. The head of household filing statusallows you to choose the standard deductioneven if your spouse chooses to itemize de-ductions. See Head of Household, later, formore information.

TIP

Unless you are required to file sepa-rately, you should figure your tax bothways (on a joint return and on sepa-

rate returns). This way you can make sure

you are using the method that results in thelowest combined tax. However, you will gen-erally pay more combined tax on separatereturns than you would on a joint return be-cause the tax rate is higher for married per-sons filing separately.

How to file. If you file a separate return, yougenerally report only your own income, ex-emptions, credits, and deductions on your in-dividual return. You can claim an exemptionfor your spouse if your spouse had no grossincome and was not the dependent of anotherperson. However, if your spouse had anygross income or was the dependent ofsomeone else, you cannot claim an ex-emption for him or her on your separate re-

turn.If you file as married filing separately, youcan use Form 1040A or Form 1040. Selectthis filing status by checking the box on line3 of either form. You must also write yourspouse's social security number and fullname in the spaces provided. Use the Mar-ried filing separatelycolumn of the Tax Tableor Schedule Y2of the Tax Rate Schedulesto figure your tax.

Separate ReturnsSpecial rules apply if you file a separate re-turn.

Community property states. If you live inArizona, California, Idaho, Louisiana, Nevada,New Mexico, Texas, Washington, orWisconsin and file separately, your incomemay be considered separate income or com-munity income for income tax purposes. SeePublication 555, Community Property.

Deductions, credits, and certain income.If you file a separate return:

1) You should itemize deductions if yourspouse itemizes deductions, becauseyou cannot claim the standard de-duction,

2) You cannot deduct interest paid on aqualified student loan,

Page 5


6/19

3) You cannot take the credit for child anddependent care expenses in most in-stances,

4) You cannot take the earned incomecredit,

5) You cannot exclude any interest incomefrom Series EE U.S. savings bonds thatyou used for higher education expenses,

6) You cannot take the credit for the elderlyor the disabled unless you lived apartfrom your spouse for the entire year,

7) You cannot take the education credits(the Hope credit and the lifetime learningcredit),

8) You cannot take the credit for adoptionexpenses in most instances,

9) You may have a smaller child tax creditthan you would on a joint return.

10) You may have to include in income moreof your social security benefits (or anyequivalent railroad retirement benefits)than you would on a joint return. For in-formation on social security and railroadretirement benefits, see Publication 915,Social Security and Equivalent RailroadRetirement Benefits.

Individual retirement arrangements (IRAs).You may not be able to deduct all or part ofyour contributions to an individual retirementarrangement (IRA) that is a traditional IRA ifyou or your spouse were covered by an em-ployee retirement plan at work during theyear. Your deduction is reduced or eliminatedif your income is more than a certain amount.This amount is lower for married individualswho file separately and lived together at anytime during the year. For more information,see How Much Can I Deduct? in Publication590, Individual Retirement Arrangements(IRAs).

Rental activity losses. If your rental of realestate is a passive activity, you can generallyoffset a loss of up to $25,000 against yournonpassive income if you actively participatein the activity. However, married persons fil-ing separate returns who lived together at anytime during the year cannot claim this offset.Married persons filing separate returns wholived apart at all times during the year areeach allowed a $12,500 maximum offset forpassive real estate activities. See Rental Ac-tivitiesin Publication 925, Passive Activity andAt-Risk Rules.

Joint Return AfterSeparate ReturnsYou can change your filing status by filing anamended return using Form 1040X.

If you or your spouse (or each of you) filea separate return, you can change to a jointreturn any time within 3 years from the duedate of the separate return or returns. Thisdoes not include any extensions. A separatereturn includes a return filed by you or yourspouse claiming married filing separately,single, or head of household filing status.

Separate ReturnsAfter Joint ReturnOnce you file a joint return, you cannotchoose to file separate returns for that yearafter the due date of the return.

Exception. A personal representative for adecedent can change from a joint returnelected by the surviving spouse to a separatereturn for the decedent. The personal repre-sentative has one year from the due date ofthe return to make the change. See Publi-cation 559 for more information on filing in-come tax returns for a decedent.

Head of HouseholdYou may be able to file as head of house-hold if you are unmarried or considered un-married on the last day of the year. In addi-tion, you must have paid more than half thecost of keeping up a home for the year. Inmost cases a qualifying person must havelived with you in the home for more than halfthe year.

TIP

If you qualify to file as head ofhousehold, your tax rate usually willbe lower than the rates for single or

married filing separately. You will also receivea higher standard deduction than if you fileas single or married filing separately.

How to file. If you file as head of household,you can use either Form 1040A or Form1040. Indicate your choice of this filing status

by checking the box on line 4 of either form.Use the Head of a household column of theTax Table or Schedule Z of the Tax RateSchedules, to figure your tax.

Considered unmarried. You are consideredunmarried on the last day of the tax year ifyou meet allof the following tests.

1) You file a separate return.

2) You paid more than half the cost ofkeeping up your home for the tax year.

3) Your spouse did not live in your homeduring the last 6 months of the tax year.Your spouse is considered to live withyou if he or she is temporarily absent dueto special circumstances. See Tempo-

rary absences, later.4) Your home was, for more than half the

year, the main home of your child,stepchild, adopted child, or foster childfor whom you can claim an exemption.(See Home of qualifying person, later.)However, you can still meet this test ifyou cannot claim an exemption for yourchild only because:

a) You state in writing to the noncus-todial parent that he or she mayclaim an exemption for the child, or

b) The noncustodial parent providesat least $600 support for the de-pendent and claims an exemptionfor the dependent under a pre-1985

divorce or separation agreement.

The rules to claim an exemption for a de-pendent are explained later under Ex-emptions for Dependents.

CAUTION

!If you were considered married forpart of the year and lived in a com-munity property state (listed earlier

under Separate Returns ), special rules mayapply in determining your income and ex-penses. See Publication 555 for more infor-mation.

Nonresident alien spouse. You are con-sidered unmarried for head of householdpurposes if your spouse was a nonresident

alien at any time during the year and you donot choose to treat your nonresident spouseas a resident alien. However, your spouse isnot a qualifying person for head of householdpurposes. You must have another qualifyingperson and meet the other tests to be eligibleto file as a head of household.

You are considered married if you chooseto treat your spouse as a resident alien. Seechapter 1 of Publication 519.

Qualifying Person

See Table 4to see who is a qualifying person.

Home of qualifying person. Generally, therelative must live with you for more than halfof the year to be a qualifying person.

Special rule for parent. You may be el-igible to file as head of household even if theparent for whom you can claim an exemptiondoes not live with you. You must pay morethan half the cost of keeping up a home thatwas the main home for the entire year foryour father or mother. You are keeping up amain home for your father or mother if youpay more than half the cost of keeping yourparent in a rest home or home for the elderly.

Death or birth. You may be eligible to fileas head of household if the individual who

qualifies you for this filing status is born ordies during the year. You must have providedmore than half of the cost of keeping up ahome that was the individual's main home formore than half of the year, or, if less, the pe-riod during which the individual lived.

Example. You are unmarried. Yourmother, for whom you can claim an ex-emption, lived in an apartment by herself. Shedied on September 2. The cost of the upkeepof her apartment for the year until her deathwas $6,000. You paid $4,000 and yourbrother paid $2,000. Your brother made noother payments towards your mother's sup-port. Your mother had no income. Becauseyou paid more than half of the cost of keepingup your mother's apartment from January 1

until her death, and you can claim an ex-emption for her, you can file as a head ofhousehold.

Temporary absences. You and your rel-ative are considered to live together even ifone or both of you are temporarily absentfrom your household due to special circum-stances such as illness, education, business,vacation, and military service. It must be rea-sonable to assume that the absent personwill return to the household after the tempo-rary absence. You must continue to maintainthe household during the absence.

Keeping Up a HomeTo qualify for head of household status, youmust pay more than half of the cost of keep-ing up a home for the year. You can deter-mine whether you paid more than half of thecost of keeping up a home by using the Costof Maintaining a Householdworksheet, later.

Costs you include. Include in the cost ofupkeep expenses such as rent, mortgage in-terest, real estate taxes, insurance on thehome, repairs, utilities, and food eaten in thehome.

Costs you do not include. Do not includein the cost of upkeep expenses such asclothing, education, medical treatment, va-cations, life insurance, or transportation. Also,

Page 6


7/19

Table 4. Who Is a Qualifying Person For Filing as Head of Household?

IF the person is your . . . AND . . . THEN that person is . . .

Parent, Grandparent, Brother, Sister,Stepbrother, Stepsister, Stepmother,Stepfather, Mother-in-law, Father-in-law,Half brother, Half sister, Brother-in-law,Sister-in-law, Son-in-law, orDaughter-in-law

You can claim an exemption for him or her A qualifying person

1A person cannot qualify more than one taxpayer to use the head of household filing status for the year.

If you can claim an exemption for a person only because of a multiple support agreement, that person cannot be a qualifying person. See Multiple SupportAgreement.

You cannot claim an exemption for him orher

NOT a qualifying person

Uncle, Aunt, Nephew, or Niece

Child, Grandchild, Stepchild, or Adoptedchild

Foster child

He or she is related to you by blood andyou can claim an exemption for him or her

2

He or she is not related to you by blood2


He or she is single

He or she is married, and you can claim anexemption for him or her

He or she is married, and you cannot claiman exemption for him or her

You can claim an exemption for him or her


A qualifying person


A qualifying person

A qualifying person

NOT a qualifying person3

A qualifying person


2You are related by blood to an uncle or aunt if he or she is the brother or sister of your mother or father. You are related by blood to a nephew or niece ifhe or she is the child of your brother or sister.

3 This child is a qualifying person if you could claim an exemption for the child except that the childs other parent claims the exemption under the specialrules for a noncustodial parent discussed under Support Test for Divorced or Separated Parents.

do not include the rental value of a home youown or the value of your services or those ofa member of your household.

Qualifying Widow(er)With Dependent ChildIf your spouse died in 1998, you can usemarried filing jointly as your filing status for1998 if you would otherwise qualify to use thatstatus. The year of death is the last year forwhich you can file jointly with your deceasedspouse. See Married Filing Jointly, earlier.

You may be eligible to use qualifyingwidow(er) with dependent childas your fil-ing status for 2 years following the year ofdeath of your spouse. For example, if yourspouse died in 1997 and you have not re-married, you may be able to use this filingstatus for 1998 and 1999. The rules for filingas a qualifying widow(er) with dependent childare explained in more detail later.

This filing status entitles you to use jointreturn tax rates and the highest standard de-duction amount (if you do not itemize de-ductions). This status does not entitle you tofile a joint return.

How to file. If you file as a qualifyingwidow(er) with dependent child, you can useeither Form 1040A or Form 1040. Indicateyour filing status by checking the box on line5 of either form. Write the year your spousedied in the space provided on line 5. Use theMarried filing jointlycolumn of the Tax Tableor Schedule Y1 of the Tax Rate Schedulesto figure your tax.

Eligibility rules. You are eligible to file as aqualifying widow(er) with dependent child ifyou meet all of the following tests.

1) You were entitled to file a joint return withyour spouse for the year your spousedied. It does not matter whether you ac-tually filed a joint return.

2) You did not remarry before the end ofthe tax year for which you are filing thereturn.

3) You have a child, stepchild, adoptedchild, or foster child for whom you canclaim an exemption.

4) You paid more than half of the cost ofkeeping up a home that is the mainhome for you and that child for the entireyear, except for temporary absences.See Temporary absencesand KeepingUp a Home, discussed earlier, underHead of Household.

CAUTION

!As mentioned earlier, this filing statusis only available for 2 years followingthe year of death of your spouse.

Example. John Reed's wife died in 1996.John has not remarried. He has continuedduring 1997 and 1998 to keep up a home for

himself and his child for whom he can claiman exemption. For 1996 he was entitled tofile a joint return for himself and his deceasedwife. For 1997 and 1998 he can file as aqualifying widower with a dependent child.After 1998 he can file as head of householdif he qualifies.

Death or birth. You may be eligible to file asa qualifying widow(er) with dependent child ifthe child who qualifies you for this filing statusis born or dies during the year. You must haveprovided more than half of the cost of keepingup a home that was the child's main homeduring the entire part of the year he or shewas alive.

Cost of Maintaining a Household

AmountYou TotalPaid Cost

Property taxes $ $Mortgage interest expenseRentUtility chargesUpkeep and repairsProperty insuranceFood consumedon the premisesOther household expensesTotals $ $Minus total amount you paid ( )Amount others paid $

If the total amount you paid is more than the amountothers paid, you meet the requirement of payingmore than half the cost of keeping up the home.

Page 7


8/19

ExemptionsExemptions reduce your taxable income.Generally, you can deduct $2,700 for eachexemption you claim in 1998. If you are enti-tled to two exemptions for 1998, you woulddeduct $5,400 ($2,700 2). But you may losethe benefit of part or all of your exemptions ifyou have a high adjusted gross income. SeePhaseout of Exemptions, later.

There are two types of exemptions: per-sonal exemptions and exemptions for depen-dents. While these are both worth the sameamount, different rules, discussed later, applyto each type.

You usually can claim exemptions foryourself, your spouse, and each person youcan claim as a dependent. If you are entitledto claim an exemption for a dependent (suchas your child), that dependent cannot claima personal exemption on his or her own taxreturn.

How to claim exemptions. How you claiman exemption on your tax return depends onwhich form you file.

Form 1040EZ filers. If you file Form

1040EZ, the exemption amount is combinedwith the standard deduction and entered online 5.

Form 1040A filers. If you file Form1040A, complete lines 6a through 6d. Followthe Form 1040A instructions. The total num-ber of exemptions you can claim is the totalin the box on line 6d. Also complete line 23by multiplying the number in the box on line6d by $2,700.

Form 1040 filers. If you file Form 1040,complete lines 6a through 6d. Follow theForm 1040 instructions. On line 38, multiplythe total exemptions shown in the box on line6d by $2,700 and enter the result. If your ad-

justed gross income is $93,400 or more, seePhaseout of Exemptions, later.

U.S. citizen or resident. If you are a U.S.citizen or resident, or a resident of Canadaor Mexico, you may qualify for any of the ex-emptions discussed here.

Nonresident aliens. Generally, if you are anonresident alien (other than a resident ofCanada or Mexico, or certain residents ofIndia, Japan, or Korea), you can qualify foronly one personal exemption for yourself. Youcannot claim exemptions for a spouse or de-pendents.

These restrictions do not apply if you area nonresident alien married to a citizen orresident of the United States and have cho-

sen to be treated as a resident of the UnitedStates.

For information on exemptions if you area nonresident alien, see chapter 5 in Publi-cation 519.

Dual-status taxpayers. If you have beenboth a nonresident alien and a resident alienin the same tax year, you should get Publi-cation 519 for information on determining yourexemptions.

Personal ExemptionsYou are generally allowed one exemption foryourself and, if you are married, one ex-emption for your spouse. These are calledpersonal exemptions.

Your Own ExemptionYou can take one exemption for yourself un-less you can be claimed as a dependent byanother taxpayer.

Single persons. If another taxpayer is enti-tled to claim you as a dependent, you cannottake an exemption for yourself. This is trueeven if the other taxpayer does not actuallyclaim your exemption.

Married persons. If you file a joint return,you can take your own exemption. If you filea separate return, you can take your ownexemption only if another taxpayer is not en-titled to claim you as a dependent.

Your Spouse's ExemptionYour spouse is never considered your de-pendent. You may be able to take one ex-emption for your spouse only because you

are married.

Joint return. On a joint return, you can claimone exemption for yourself and one for yourspouse.

If your spouse had any gross income,you can claim his or her exemption only if youfile a joint return.

Separate return. If you file a separate return,you can claim the exemption for your spouseonly if your spouse had no gross incomeand was not the dependent of another tax-payer. This is true even if the other taxpayerdoes not actually claim your spouse's ex-emption. This is also true if your spouse is anonresident alien.

Death of spouse. If your spouse died duringthe year, you can generally claim yourspouse's exemption under the rules just ex-plained in Joint returnand Separate return.

If you remarried during the year, you can-not take an exemption for your deceasedspouse.

If you are a surviving spouse without grossincome and you remarry, you can be claimedas an exemption on both the final separatereturn of your deceased spouse and theseparate return of your new spouse whomyou married in the same year. If you file a

joint return with your new spouse, you canbe claimed as an exemption only on that re-turn.

Divorced or separated spouse. If you ob-tained a final decree of divorce or separatemaintenance by the end of the year, youcannot take your former spouse's exemption.This rule applies even if you provided all ofyour former spouse's support.

Exemptionsfor DependentsYou are allowed one exemption for eachperson you can claim as a dependent.

You can claim an exemption for a personif all five of the exemption tests, discussedlater, are met. You can take an exemption for

your dependent even if your dependent filesa return. But that dependent cannot claim hisor her personal exemption if you are entitledto do so. However, see Joint Return Test,later.

Child tax credit. Beginning in 1998, you maybe entitled to a child tax credit for each of yourqualifying children for whom you can claiman exemption. For more information, see theinstructions in your tax forms package.

Child born alive. If your child was born aliveduring the year, and the exemption tests aremet, you can take the full exemption. This istrue even if the child lived only for a moment.Whether your child was born alive dependson state or local law. There must be proofof a live birth shown by an official document,such as a birth certificate.

Stillborn child. You cannot claim an ex-emption for a stillborn child.

Death of dependent. If your dependent diedduring the year and otherwise met the ex-emption tests, you can take an exemption foryour dependent.

Example. Your dependent mother died

on January 15. The five exemption tests aremet. You can take a full exemption for her onyour return.

Housekeepers, maids, or servants. If thesepeople work for you, you cannot claim ex-emptions for them.

Exemption TestsThe following five tests must be met for youto claim an exemption for a dependent:

1. Member of Household or Relationship Test,

2. Citizenship Test,

3. Joint Return Test,

4. Gross Income Test, and

5. Support Test.

1. Member of Household orRelationship TestTo meet this test, a person must live with youfor the entire year as a member of yourhousehold or be related to you. If at any timeduring the year the person was your spouse,that person cannot be your dependent. How-ever, see Personal Exemptions, earlier.

Temporary absences. A person lives withyou as a member of your household even ifeither (or both) of you are temporarily absentdue to special circumstances. Temporary ab-sences due to special circumstances includeabsences because of illness, education,business, vacation, and military service.

If the person is placed in a nursing homefor an indefinite period of time to receiveconstant medical care, the absence is con-sidered temporary.

Death or birth. A person who died during theyear, but was a member of your householduntil death, will meet the member of house-hold test. The same is true for a child whowas born during the year and was a memberof your household for the rest of the year. Thetest is also met if a child would have been amember except for any required hospital stayfollowing birth.

Page 8


9/19

Figure A. Can You Claim an Exemption for a Dependent?

Was the person either a member of your household for the entire taxyear or related to you?

You cannotclaim anexemptionfor thisperson.

You canclaim anexemptionfor this

person.

Start Here:

No

Yes

No

Yes

Was the person a U.S. citizen or resident, or a resident of Canada orMexico for any part of the tax year?

1

Did the person file a joint return for the year?2

Did you provide more than half the persons total support for theyear? (If you are a divorced or separated parent of the person, seeSupport Test for Divorced or Separated Parents.)

3

Did the person have gross income of $2,700 or more during the taxyear?

Was the person your child?

Was your child under 19 at the end of the year?

Was your child under 24 at the end of the year and a full-timestudent for some part of each of five months during the year?

Yes

Yes

No

Yes

Yes

Yes

No

No

No

No

No

Yes

1If the person was your legally adopted child and lived in your home as a member of your household for the entire tax year, answer yes to this question.

2If neither the person nor the persons spouse is required to file a return, but they file a joint return only to claim a refund of tax withheld, answer no to thisquestion.

3Answer yes to this question if you meet the multiple support requirements under Multiple Support Agreement.

Test not met. A person does not meet themember of household test if at any time dur-ing your tax year the relationship between you

and that person violates local law.

Relatives not living with you. A person re-lated to you in any of the following ways doesnot have to live with you for the entire yearas a member of your household to meet thistest.

Your child, grandchild, great grandchild,etc. (a legally adopted child is consideredyour child).

Your stepchild.

Your brother, sister, half brother, halfsister, stepbrother, or stepsister.

Your parent, grandparent, or other directancestor, but not foster parent.

Your stepfather or stepmother. A brother or sister of your father or

mother.

A son or daughter of your brother or sis-ter.

Your father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, orsister-in-law.

Any of these relationships that were estab-lished by marriage are not ended by deathor divorce.

Adoption. Before legal adoption, a child isconsidered to be your child if he or she wasplaced with you for adoption by an authorized

agency. Also, the child must have been amember of your household. If the child wasnot placed with you by an authorized agency,the child will meet this test only if he or shewas a member of your household for yourentire tax year.

Foster child. A foster child must live with youas a member of your household for the entireyear to qualify as your dependent. For thistest, a foster child is one who is in your carethat you care for as your own child. It doesnot matter how the child became a memberof the household.

Page 9


10/19

Cousin. You can claim an exemption for yourcousin only if he or she lives with you as amember of your household for the entire year.A cousin is a descendant of a brother or sisterof your father or mother and does not qualifyunder the relationship test.

Joint return. If you file a joint return, you donot need to show that a person is related toboth you and your spouse. You also do notneed to show that a person is related to thespouse who provides support.

For example, your spouse's uncle whoreceives more than half of his support fromyou may be your dependent, even though hedoes not live with you. However, if you andyour spouse file separate returns, yourspouse's uncle can be your dependent onlyif he is a member of your household and liveswith you for your entire tax year.

2. Citizenship TestTo meet the citizenship test, a person mustbe a U.S. citizen or resident, or a resident ofCanada or Mexico, for some part of the cal-endar year in which your tax year begins.

Children's place of residence. Childrenusually are citizens or residents of the country

of their parents.If you were a U.S. citizen when your childwas born, the child may be a U.S. citizen al-though the other parent was a nonresidentalien and the child was born in a foreigncountry. If so, and the other exemption testsare met, you can take the exemption. It doesnot matter if the child lives abroad with thenonresident alien parent.

If you are a U.S. citizen who has legallyadopted a child who is not a U.S. citizen orresident, and the other exemption tests aremet, you can take the exemption if your homeis the child's main home and the child is amember of your household for your entire taxyear.

Foreign students' place of residence. For-eign students brought to this country under aqualified international education exchangeprogram and placed in American homes fora temporary period generally are not U.S.residents and do not meet the citizenship test.You cannot claim an exemption for them.However, if you provided a home for a foreignstudent, you may be able to take a charitablecontribution deduction. See Expenses Paidfor Student Living With You in Publication526, Charitable Contributions.

3. Joint Return TestEven if the other exemption tests are met, youare generally not allowed an exemption foryour dependent if he or she files a joint return.

Example. You supported your daughterfor the entire year while her husband was inthe Armed Forces. The couple files a jointreturn. Even though all the other tests aremet, you cannot take an exemption for yourdaughter.

Exception. The joint return test does notapply if a joint return is filed by the dependentand his or her spouse merely as a claim forrefund and no tax liability would exist for ei-ther spouse on the basis of separate returns.

Example. Your son and his wife each hadless than $2,000 of wages and no unearnedincome. Neither is required to file a tax return.

Taxes were taken out of their pay, so theyfiled a joint return to get a refund. You areallowed to take exemptions for your son anddaughter-in-law if the other exemption testsare met.

4. Gross Income TestGenerally, you cannot take an exemption fora dependent if that person had gross incomeof $2,700 or more for the year. This test doesnot apply if the person is your child and iseither under age 19, or a student under age

24, as discussed later.If you file on a fiscal year basis, the gross

income test applies to the calendar year inwhich your fiscal year begins.

Gross income defined. All income in theform of money, property, and services that isnot exempt from tax is gross income.

In a manufacturing, merchandising, ormining business, gross income is the total netsales minus the cost of goods sold, plus anymiscellaneous income from the business.

Gross receipts from rental property aregross income. Do not deduct taxes, repairs,etc., to determine the gross income fromrental property.

Gross income includes a partner's share

of the gross (not a share of the net) partner-ship income.

Gross income also includes all unemploy-ment compensation and certain scholarshipand fellowship grants. Scholarships receivedby degree candidates that are used for tuition,fees, supplies, books, and equipment re-quired for particular courses are not includedin gross income. For more information, seePublication 520.

Tax-exempt income, such as certain so-cial security payments, is not included ingross income.

Disabled dependents. For this gross in-come test, gross income does not include in-come received by a permanently and totallydisabled individual at a sheltered workshop.

The availability of medical care must be themain reason the individual is at the workshop.Also, the income must come solely from ac-tivities at the workshop that are incident to thismedical care. A sheltered workshop is aschool operated by certain tax-exempt or-ganizations, or by a state, a U.S. possession,a political subdivision of a state or pos-session, the United States, or the District ofColumbia, that provides special instruction ortraining designed to alleviate the disability ofthe individual.

Child defined. For purposes of the gross in-come test, your child is your son, stepson,daughter, stepdaughter, a legally adoptedchild, or a child who was placed with you byan authorized placement agency for your le-gal adoption. A foster child who was a mem-ber of your household for your entire tax yearis also considered your child.

Child under age 19. If your child is under19 at the end of the year, the gross incometest does not apply. Your child can have anyamount of income and you can still claim anexemption if the other exemption tests, in-cluding the support test, are met.

Example. Marie, 18, earned $3,000. Herfather provided more than half her support.He can claim an exemption for her becausethe gross income test does not apply and theother exemption tests were met.

Student under age 24. If your child is astudent, the gross income test does not applyif the child is under age 24 at the end of thecalendar year. The other exemption testsmust still be met.

Student defined. To qualify as a student,your child must be, during some part of eachof 5 calendar months during the calendar year(not necessarily consecutive):

1) A full-time student at a school that hasa regular teaching staff, course of study,and regularly enrolled body of students

in attendance, or

2) A student taking a full-time, on-farmtraining course given by a school de-scribed in (1) above or a state, county,or local government.

Full-time student defined. A full-timestudent is a person who is enrolled for thenumber of hours or courses the school con-siders to be full-time attendance.

School defined. The term school in-cludes elementary schools, junior and seniorhigh schools, colleges, universities, andtechnical, trade, and mechanical schools. Itdoes not include on-the-job training courses,correspondence schools, and night schools.

Example. James, 22, attends college asa full-time student. During the summer,James earned $3,000. If the other exemptiontests are met, his parents can take the ex-emption for James.

Vocational high school students. Peo-ple who work on co-op jobs in private in-dustry as a part of the school's prescribedcourse of classroom and practical training areconsidered full-time students.

Night school. Your child is not a full-timestudent while attending school only at night.However, full-time attendance at a school caninclude some attendance at night as part ofa full-time course of study.

5. Support TestYou must provide more than half of a person'stotal support during the calendar year to meetthe support test. You figure whether you haveprovided more than half by comparing theamount you contributed to the person's sup-port with the entire amount of support theperson received from all sources. Thisamount includes the person's own funds usedfor support. You cannot include in your con-tribution any part of your child's support thatis paid for by the child with the child's ownwages, even if you pay the wages. See TotalSupportand Table 5, later.

A person's own funds are not support un-less they are actually spent for support.

Example. Your mother received $2,400in social security benefits and $300 in inter-est. She paid $2,000 for lodging and $400 forrecreation.

Even though your mother received a totalof $2,700, she spent only $2,400 for her ownsupport. If you spent more than $2,400 for hersupport and no other support was received,you have provided more than half of hersupport.

Year support is provided. The year youprovide the support is the year you pay for it,even if you do so with borrowed money thatyou repay in a later year.

If you use a fiscal year to report your in-come, you must provide more than half of the

Page 10


11/19

Table 5. Worksheet for Determining Support

Income of the Person You Supported

1) Did the person you supported receive any income, such as wages, interest, dividends, pensions, rents,social security, or welfare? (If yes, complete lines 2, 3, 4, and 5. If no, go to line 6.)

2) Total income received

3) Amount of income used for support

4) Amount of income used for other purposes

5) Amount of income saved

(The total of lines 3, 4, and 5 should equal line 2)

Expenses for Entire Household (where the person you supported lived)

6) Lodging (Complete item a or b)

a) Rent paid

b) If not rented, show fair rental value of home. If the person you supported owned the home, include thisamount in line 20.

7) Food

8) Utilities (heat, light, water, etc. not included in line 6a or 6b)

9) Repairs (not included in line 6a or 6b)

10) Other. Do not include expenses of maintaining home, such as mortgage interest, real estate taxes, andinsurance.

11) Total household expenses (Add lines 6 through 10)

12) Total number of persons who lived in household

Expenses for the Person You Supported

13) Each persons part of household expenses (line 11 divided by line 12)

14) Clothing

15) Education

16) Medical, dental

17) Travel, recreation

18) Other (specify)

19) Total cost of support for the year (Add lines 13 through 18)

20) Amount the person provided for own support (line 3, plus line 6b if the person you supportedowned the home)

21) Amount others provided for the persons support. Include amounts provided by state, local, and otherwelfare societies or agencies. Do not include any amounts included on line 2.

22) Amount you provided for the persons support (line 19 minus lines 20 and 21)

23) 50% of line 19

Is line 22 more than line 23?

Yes No

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Did You Provide More Than Half?

Yes. You meet the support test for the person. If the other exemption tests are met, you may claim an exemption for the person.No. You do not meet the support test for the person. You cannot claim an exemption for the person unless you can do so under a multiplesupport agreement. See Multiple Support Agreement later in this publication.

Page 11


12/19

dependent's support for the calendar year inwhich your fiscal year begins.

Armed Forces dependency allotments.The part of the allotment contributed by thegovernment and the part taken out of yourmilitary pay are both considered provided byyou in figuring whether you provide more thanhalf of the support. If your allotment is usedto support persons other than those youname, you can take the exemptions for themif they otherwise qualify.

Example. You are in the Armed Forces.You authorize an allotment for your widowedmother that she uses to support herself andyour sister. If the allotment provides morethan half of their support, you can take anexemption for each of them, if they otherwisequalify, even though you authorize the allot-ment only for your mother.

Tax-exempt military quarters allow-ances. These allowances are treated thesame way as dependency allotments in fig-uring support. The allotment of pay and thetax-exempt basic allowance for quarters areboth considered as provided by you for sup-

port.

Tax-exempt income. In figuring a person'stotal support, include tax-exempt income,savings, and borrowed amounts used tosupport that person. Tax-exempt income in-cludes certain social security benefits, welfarebenefits, nontaxable life insurance proceeds,Armed Forces family allotments, nontaxablepensions, and tax-exempt interest.

Example 1. You provide $4,000 towardyour mother's support during the year. Shehas earned income of $600, nontaxable socialsecurity benefit payments of $4,800, andtax-exempt interest of $200. She uses all

these for her support. You cannot claim anexemption for your mother because the$4,000 you provide is not more than half ofher total support of $9,600.

Example 2. Your daughter takes out astudent loan of $2,500 and uses it to pay hercollege tuition. She is personally responsiblefor the loan. You provide $2,000 toward hertotal support. You cannot claim an exemptionfor your daughter because you provide lessthan half of her support.

Social security benefit payments. If ahusband and wife each receive payments thatare paid by one check made out to both ofthem, half of the total paid is considered to

be for the support of each spouse, unlessthey can show otherwise.

If a child receives social security benefitsand uses them toward his or her own support,the payments are considered as provided bythe child.

Support provided by the state (welfare,food stamps, housing, etc.). Benefits pro-vided by the state to a needy person generallyare considered to be used for support. How-ever, payments based on the needs of therecipient will not be considered as used en-tirely for that person's support if it is shownthat part of the payments were not used forthat purpose.

Foster care payments. Payments you re-ceive for a foster child from a child placementagency are considered support provided bythe agency. Similarly, payments from a stateor county for foster care are considered sup-port provided by the state or county.

Home for the aged. If you make a lump-sumadvance payment to a home for the aged totake care of your relative for life and thepayment is based on that person's life ex-pectancy, the amount of your support eachyear is the lump-sum payment divided by therelative's life expectancy. Your support alsoincludes any other amounts that you providedduring the year.

Total Support

To figure if you provided more than half of thesupport of a person, you must first determinethe total support provided for that person.Total support includes amounts spent to pro-vide food, lodging, clothing, education, med-ical and dental care, recreation, transporta-tion, and similar necessities.

Generally, the amount of an item of sup-port is the amount of the expense incurred in

providing that item. Expenses that are not di-rectly related to any one member of ahousehold, such as the cost of food for thehousehold, must be divided among themembers of the household. For lodging, theamount of support is the fair rental value ofthe lodging.

Example 1. Grace Brown, mother of MaryMiller, lives with Frank and Mary Miller andtheir two children. Grace gets a fully taxablepension of $1,500, which she spends forclothing and recreation. Grace has no otherincome. Frank and Mary's total food expensefor the household is $5,000. They pay Grace'smedical and drug expenses of $300. The fairrental value of the lodging provided for Grace

is $960 a year, based on the cost of similarrooming facilities. Figure Grace's total supportas follows:

Because the support Frank and Maryprovide ($960 lodging + $300 medical ex-penses + $1,000 food = $2,260) is more thanhalf of Grace's $3,760 total support, andGrace meets the other exemption tests, theycan claim an exemption for her.

Example 2. Your parents live with you,your spouse, and your two children in a houseyou own. The fair rental value of your parents'share of the lodging is $2,000 a year, whichincludes furnishings and utilities. Your fatherreceives a nontaxable pension of $4,200,which he spends equally between yourmother and himself for items of support suchas clothing, transportation, and recreation.Your total food expense for the household is$6,000. Your heat and utility bills amount to$1,200. Your mother has hospital and med-ical expenses of $600, which you pay duringthe year. Figure your parents' total supportas follows:

You must apply the support test sepa-rately to each parent. You provide $2,000($1,000 lodging, $1,000 food) of your father's

total support of $4,100 less than half. Youprovide $2,600 to your mother ($1,000 lodg-ing, $1,000 food, $600 medical) more thanhalf of her total support of $4,700. You meetthe support test for your mother, but not yourfather. Heat and utility costs are included inthe fair rental value of the lodging, so theseare not considered separately.

Lodging defined. Lodging is the fair rentalvalue of the room, apartment, or house inwhich the person lives. It includes a reason-able allowance for the use of furniture andappliances, and for heat and other utilities.

Fair rental value defined. This is theamount you could reasonably expect to re-ceive from a stranger for the same kind of

lodging. It is used in place of rent or taxes,interest, depreciation, paint, insurance, utili-ties, cost of furniture and appliances, etc. Insome cases, fair rental value may be equalto the rent paid.

If you are considered to provide the totallodging, determine the fair rental value of theroom the person uses, or a share of the fairrental value of the entire dwelling if the personhas use of your entire home. If you do notprovide the total lodging, the total fair rentalvalue must be divided depending on howmuch of the total lodging you provide. If youprovide only a part and the person suppliesthe rest, the fair rental value must be dividedbetween both of you according to the amounteach provides.

Example. Your parents live rent free ina house you own. It has a fair rental value of$5,400 a year furnished, which includes a fairrental value of $3,600 for the house and$1,800 for the furniture. This does not includeheat and utilities. The house is completelyfurnished with furniture belonging to yourparents. You pay $600 for their utility bills.Utilities are not usually included in rent forhouses in the area where your parents live.Therefore, you consider the total fair rentalvalue of the lodging to be $6,000 ($3,600 fairrental value of the unfurnished house, $1,800allowance for the furnishings provided by yourparents, and $600 cost of utilities) of whichyou are considered to provide $4,200 ($3,600+ $600).

Person living in his or her own home.The total fair rental value of a person's homethat he or she owns is considered supportcontributed by that person.

If you help to keep up the home by payinginterest on the mortgage, real estate taxes,fire insurance premiums, ordinary repairs, orother items directly related to the home, orgive someone cash to pay those expenses,reduce the total fair rental value of the homeby those amounts in figuring that person'sown contribution.

Example. You provide $6,000 cash foryour father's support during the year. He livesin his own home, which has a fair rental value

Support pro-vided

Father Mother

Fair rental value of lodging ............. $1,000 $1,000

Pension spent for their support ....... 2,100 2,100

Share of food (1/6 of $6,000) ......... 1,000 1,000

Medical expenses for mother .......... 600

Parents' total support ................... $4,100 $4,700

Fair rental value of lodging .......................... $ 960

Clothing and recreation ............................... 1,500

Medical expenses ........................................ 300

Share of food (1/5 of $5,000) ...................... 1,000

Total support .............................................. $3,760

Page 12


13/19

of $6,600 a year. He uses $800 of the moneyyou give him to pay his real estate taxes. Yourfather's contribution for his own lodging is$5,800 ($6,600 $800 for taxes).

Living with someone rent free. If youlive with a person rent free in his or her home,you must reduce the amount you provide forsupport by the fair rental value of lodging heor she provides you.

Property. Property provided as support ismeasured by its fair market value. Fair marketvalue is the price that property would sell foron the open market. It is the price that wouldbe agreed upon between a willing buyer anda willing seller, with neither being required toact, and both having reasonable knowledgeof the relevant facts.

Capital expenses. Capital items, such asfurniture, appliances, and cars, that arebought for a person during the year can beincluded in total support under certain cir-cumstances.

The following examples show when acapital item is or is not support.

Example 1. You buy a $200 power lawnmower for your 13-year-old child. The childis given the duty of keeping the lawn trimmed.

Because a lawn mower is ordinarily an itemyou buy for personal and family reasons thatbenefits all members of the household, youcannot include the cost of the lawn mower inthe support of your child.

Example 2. You buy a $150 televisionset as a birthday present for your 12-year-oldchild. The television set is placed in yourchild's bedroom. You include the cost of thetelevision set in the support of your child.

Example 3. You pay $5,000 for a car andregister it in your name. You and your17-year-old daughter use the car equally.Because you own the car and do not give itto your daughter but merely let her use it, youcannot include the cost of the car in your

daughter's total support. However, you caninclude in your daughter's support your out-of-pocket expenses of operating the car forher benefit.

Example 4. Your 17-year-old son, usingpersonal funds, buys a car for $4,500. Youprovide all the rest of your son's support $4,000. Since the car is bought and ownedby your son, the car's fair market value($4,500) must be included in his support. The$4,000 support you provide is less than halfof his total support of $8,500. You cannotclaim an exemption for your son.

Medical insurance premiums. Medical in-surance premiums you pay, including premi-

ums for supplementary Medicare coverage,are included in the total support you provide.Medical insurance benefits. Medical in-

surance benefits, including basic and supple-mentary Medicare benefits, are not part ofsupport.

Tuition payments and allowances underthe GI Bill. Amounts veterans receive underthe GI Bill for tuition payments and allow-ances while they attend school are includedin total support.

Example. During the year, your son re-ceives $2,200 from the government under theGI Bill. He uses this amount for his education.You provide the rest of his support $2,000.

Because GI benefits are included in totalsupport, your son is not your dependent.

Other support items. Other items may beconsidered as support depending on the factsin each case. For example, if you pay some-one to provide child care or disabled de-pendent care, you can include these pay-ments as support, even if you claim a creditfor them. For information on the credit, seePublication 503, Child and Dependent CareExpenses.

Do Not Includein Total SupportThe following items are not included in totalsupport.

1) Federal, state, and local income taxespaid by persons from their own income.

2) Social security and Medicare taxes paidby persons from their own income.

3) Life insurance premiums.

4) Funeral expenses.

5) Scholarships received by your child ifyour child is a full-time student.

6) Survivors' and Dependents' EducationalAssistance payments used for the sup-port of the child who receives them.

Multiple Support AgreementSometimes no one provides more than halfof the support of a person. Instead, two ormore persons, each of whom would be ableto take the exemption but for the support test,together provide more than half of the per-son's support.

When this happens, you can agree thatany one of you who individually providesmore than 10% of the person's support, butonly one, can claim an exemption for thatperson. Each of the others must sign a writtenstatement agreeing not to claim the ex-

emption for that year. The statements mustbe filed with the income tax return of theperson who claims the exemption. Form2120, Multiple Support Declaration, is usedfor this purpose.

Example 1. You, your sister, and yourtwo brothers provide the entire support ofyour mother for the year. You provide 45%,your sister 35%, and your two brothers eachprovide 10%. Either you or your sister canclaim an exemption for your mother. Theother must sign a Form 2120 or a similarstatement agreeing not to take an exemptionfor her. Because neither brother providesmore than 10% of the support, neither cantake the exemption. Your brothers do nothave to sign a Form 2120 or the written

statement.

Example 2. You and your brother eachprovide 20% of your mother's support for theyear. The remaining 60% of her support isprovided equally by two persons who are notrelated to her. She does not live with them.Because more than half of her support isprovided by persons who cannot claim anexemption for her, no one can take the ex-emption.

Example 3. Your father lives with you andreceives 25% of his support from social se-curity, 40% from you, 24% from his brother,and 11% from a friend. Either you or youruncle can take the exemption for your father.

A Form 2120 or a similar statement from theone not taking the exemption must be at-tached to the return of the one who takes theexemption.

Support Test for Divorcedor Separated ParentsThe support test for a child of divorced orseparated parents is based on special rulesthat apply only if:

1) The parents are divorced or legally sep-

arated under a decree of divorce orseparate maintenance, or separated un-der a written separation agreement, orlived apart at all times during the last 6months of the calendar year,

2) One or both parents provide more thanhalf of the child's total support for thecalendar year, and

3) One or both parents have custody of thechild for more than half of the calendaryear.

Child is defined earlier under Gross In-come Test.

This discussion does not apply if the sup-port of the child is determined under a multi-

ple support agreement, discussed earlier.

Custodial parent. The parent who has cus-tody of the child for the greater part of theyear (the custodial parent) is generally treatedas the parent who provides more than half ofthe child's support. It does not matter whetherthe custodial parent actually provided morethan half of the support.

Custody. Custody is usually determinedby the terms of the most recent decree of di-vorce or separate maintenance, or a latercustody decree. If there is no decree, use thewritten separation agreement. If neither adecree nor agreement establishes custody,then the parent who has the physical custodyof the child for the greater part of the year isconsidered to have custody of the child. Thisalso applies if the validity of a decree oragreement awarding custody is uncertain be-cause of legal proceedings pending on thelast day of the calendar year.

If the parents are divorced or separatedduring the year and had joint custody of thechild before the separation, the parent whohas custody for the greater part of the rest ofthe year is considered to have custody of thechild for the tax year.

Example 1. Under the terms of your di-vorce, you have custody of your child for 10months of the year. Your former spouse hascustody for the other 2 months. You and yourformer spouse provide the child's total sup-port. You are considered to have provided

more than half of the support of the child.However, see Noncustodial parent, later.

Example 2. You and your former spouseprovided your child's total support for 1998.You had custody of your child under your1993 divorce decree, but on August 31, 1998,a new custody decree granted custody toyour former spouse. Because you had cus-tody for the greater part of the year, you areconsidered to have provided more than halfof your child's support.

Noncustodial parent. The noncustodial par-ent is the parent who has custody of the childfor the shorter part of the year or who doesnot have custody at all. The noncustodial

Page 13


14/19

Figure B. Support Test for Children of Divorced or Separated Parents

Are the parents divorced orlegally separated, separatedunder a written agreement, ordid they live apart the last 6months of the year?

Is there a decree oragreement executedafter 1984 thatunconditionally entitlesthe noncustodial parentto the exemption?

Start Here

No

Yes

Did one or both parentsfurnish over half of the childstotal support?

Is the child in the custody ofone or both parents for morethan half of the year?

Did the custodial parent signa Form 8332 or similarstatement releasing theexemption?

Yes

Yes

Yes

No

No

YesDid any one personprovide over half of the

childs total support?

PERSON WHO PROVIDEDOVER HALF OF CHILDS

SUPPORT PASSESSUPPORT TEST

SEE MULTIPLE SUPPORTAGREEMENTS

Is there a decree oragreement executedbefore 1985 (and notmodified after 1984)that entitles thenoncustodial parent tothe exemption?

Did the noncustodialparent provide at least$600 of the childssupport during theyear?

NONCUSTODIAL PARENTPASSES SUPPORT TEST

CUSTODIAL PARENTPASSES SUPPORT TEST

No

No

No

No

Yes

Yes

No

Yes

Page 14


15/19

parent will be treated as providing more thanhalf of the child's support if:

1) The custodial parent signs a writtendeclaration that he or she will not claimthe exemption for the child, and thenoncustodial parent attaches this writtendeclaration to his or her return,

2) A decree or agreement went into effectafter 1984 and states the noncustodialparent can claim the child as a depend-ent without regard to any condition, such

as payment of support, or

3) A decree or agreement executed before1985 provides that the noncustodialparent is entitled to the exemption, andhe or she provides at least $600 for thechild's support during the year, unlessthe pre-1985 decree or agreement ismodified after 1984 to specify that thisprovision will not apply.

Example. Under the terms of your 1983divorce decree, your former spouse has cus-tody of your child. The decree specificallystates that you are entitled to the exemption.You provide at least $600 in child supportduring the calendar year. You are consideredto have provided more than half of the child'ssupport.

Written declaration. The custodial parentshould use Form 8332, Release of Claim toExemption for Child of Divorced or SeparatedParents, or a similar st

us internal revenue service: p501--1998

Documents