The IRS issued final regulations addressing the requirements for being considered a qualifying relative. Some benefit rules, such as if an individual is an HSA-eligible dependent, look to the definition of “qualifying relative” to determine reimbursement eligibility.
One of the Internal Revenue Code requirements for being a “qualifying relative” is that the individual’s gross income must be below the personal exemption amount. The Tax Cuts and Jobs act reduced the personal exemption amount to $0 for tax years 2018-2025. Without the personal exemption, the definition of qualifying relative was unclear.
The new final regulations set the income test for a qualifying relative at $4,150, adjusted for inflation. Some benefit requirements ignore the income test, including the rule for determining if an individual is an employee’s tax dependent for health coverage purposes or an eligible dependent for dependent care FSA reimbursements. However, other requirements, such as if an individual is an HSA-eligible tax dependent, do take into account the qualifying relative income limits.
This final rule brings some clarity to the definition of qualifying relative.