What Is the Gross-Income Test?
Let me explain the gross-income test directly: it's one of the five essential tests that a dependent must pass before you can claim them on your US tax return.
This test requires that the dependent doesn't earn more than a specific income amount each year. Remember, it only applies to potential dependents who are over 19, or over 24 if they're full-time students.
Understanding the Gross-Income Test
The income limit for a potential dependent adjusts for inflation each year, so it changes over time. For instance, in 2021, the threshold was $4,300, up from $4,000 in 2015 and $3,500 in 2008. You need to use the current figure for the tax year in question before checking the other dependency tests.
If someone fails the gross-income test or any of the other qualifying relative tests, you can't claim them as a dependent for the personal exemption. For a qualifying child, a different set of tests applies. Keep in mind, there's no age limit for qualifying relatives. If you claim an exemption for a dependent, that person can't claim their own personal exemption on their tax return.
Income Considered Valid for Gross Income Consideration
When calculating gross income for a potential qualifying relative, you include all their combined income sources, which can be money, non-tax-exempt property, or services. For businesses like merchandising, mining, or manufacturing, gross income is total net sales minus the cost of goods sold, plus any other business income.
Gross receipts from rental properties count as gross income. It also includes a partner's share of gross partnership income, but not their share of net profits. Other items are taxable social security benefits, taxable unemployment compensation, and certain employer-provided scholarships or fellowships.
One key point: if a household member pays court-ordered child support to a child outside the home, that support doesn't count toward the gross-income test. Also, there's no gross-income test at all for households that include an elderly or disabled member.
Other articles for you
The Nikkei 225 is Japan's leading price-weighted stock index tracking 225 top blue-chip companies on the Tokyo Stock Exchange.
The coupon rate is the fixed annual interest rate paid on a bond relative to its par value, influencing its market value as interest rates change.
Index options are cash-settled financial derivatives based on market indices like the S&P 500, allowing traders to speculate or hedge without buying actual stocks.
Gross National Happiness (GNH) is Bhutan's alternative measure to GDP, focusing on citizens' happiness and well-being through holistic factors.
Bond rating agencies evaluate the creditworthiness of debt securities and issuers to inform investors about repayment risks.
The declining balance method accelerates depreciation by recording larger expenses in an asset's early years and smaller ones later.
A closed economy is a self-sufficient system where a country avoids international trade and produces everything domestically.
Capital structure is how companies mix debt and equity to fund operations, as illustrated by Meta's strategic borrowing despite ample cash reserves.
An excise tax is a levy on specific goods or services, often passed from businesses to consumers, with types including ad valorem and specific taxes.
A living wage is an income level that covers basic necessities to prevent poverty, distinct from the lower minimum wage.