Key Takeaways
- Applies only to qualifying relatives, not children.
- Dependent's gross income must be under $4,700 in 2023.
- Includes taxable wages, interest, dividends, pensions.
- Test excludes nontaxable Social Security and gifts.
What is Gross Income Test?
The gross income test determines if a person qualifies as a dependent under the category of qualifying relative for U.S. federal tax purposes. It requires the potential dependent's total gross income—such as wages, taxable interest, dividends, and pensions—to be below a specific threshold, which is $4,700 for tax year 2023.
This test excludes qualifying children and focuses solely on qualifying relatives, ensuring you only claim dependents who meet the income criteria outlined in IRS regulations.
Key Characteristics
Understanding the core features of the gross income test helps you correctly identify eligible dependents.
- Applies to qualifying relatives: Only individuals who are not qualifying children but meet relationship or household member criteria.
- Income threshold: Gross income must be less than $4,700 for 2023, adjusted annually for inflation.
- Gross income definition: Includes taxable wages, interest, dividends, and pensions but excludes tax-exempt income like most Social Security benefits. Learn more about earned income.
- Support test: You must provide more than half of the dependent’s financial support.
- Dependent eligibility: The individual cannot file a joint return except to claim a refund.
How It Works
To apply the gross income test, first calculate all taxable income sources of the potential dependent. This includes income from jobs, taxable interest, dividends, and taxable pensions. Exclude nontaxable items such as certain Social Security benefits and gifts.
If the total gross income is under the $4,700 limit, and you provide more than half their support, the person qualifies as your dependent under the qualifying relative rules. This impacts your tax filing status and eligibility for credits.
Understanding the ability to pay taxation principle can also clarify why this income threshold matters in dependency claims.
Examples and Use Cases
Applying the gross income test can vary depending on family and financial situations.
- Airlines: If you work at Delta and support a sibling whose gross income is below the threshold, you can claim them as a dependent if other criteria are met.
- Investment income: A relative earning dividends from holdings mentioned in best dividend stocks must include this income when calculating gross income.
- Low-cost index funds: Income generated from low-cost index funds counts toward gross income and affects eligibility under the test.
- ETFs for beginners: If a dependent holds ETFs covered in our best ETFs for beginners guide, any taxable distributions must be included in gross income.
Important Considerations
Keep in mind that the gross income threshold changes annually, so always verify the current limits when filing your taxes. Also, some types of income are excluded, which can affect your dependent’s qualification.
If unsure about the income components or support calculations, consult IRS guidelines or tax professionals to avoid errors. Properly applying the gross income test ensures you maximize eligible tax credits and comply with regulations.
Final Words
To claim a qualifying relative as a dependent, ensure their gross income stays below the annual threshold—$4,700 for 2023. Check their income sources carefully and revisit this limit as it adjusts yearly with inflation.
Frequently Asked Questions
The Gross Income Test determines if a qualifying relative's gross income is less than $4,700 for tax year 2023. If their income is below this threshold and other requirements are met, you may claim them as a dependent.
The test applies only to qualifying relatives, not qualifying children. Qualifying children are exempt from this test as they qualify through age, relationship, residency, and support rules instead.
Gross income includes taxable wages, interest, dividends, pensions, and other taxable income. It excludes tax-exempt interest, most Social Security benefits, gifts, and inheritances.
A permanently disabled relative may qualify as a qualifying child, which does not require passing the Gross Income Test. This means their income level does not disqualify them as a dependent if other criteria are met.
No, if a qualifying relative’s gross income is $4,700 or more in 2023, they fail the Gross Income Test and cannot be claimed as a dependent under the qualifying relative rules.
Yes, the income threshold adjusts annually for inflation. It was $4,700 in 2023, increasing to $5,050 for 2024 and $5,200 for 2025.
Besides the Gross Income Test, the dependent must not be a qualifying child, must be a relative or household member, you must provide over half their support, and they must pass the citizen/resident and joint return tests.
No, only income subject to tax counts, such as wages, taxable interest, and pensions. Non-taxable income like most Social Security benefits, gifts, and inheritances are excluded.
