Although it's common for parents to claim their kids as dependents, it's possible for one adult to claim another adult as a dependent too. The tax rules that apply to adult dependents are a bit more restrictive than those that apply to children. The Internal Revenue Service has four rules that must be met before it'll allow any such claim.
Yours and Yours Alone
The IRS' qualifying relative rule usually comes into play for adult dependents. It's an acceptable exemption only if that adult doesn't show up as a qualifying child on someone else's taxes. For example, if she's 23 and a full-time student for at least five months of the year, her parent's might be able to claim her exemption -- which means you can't.
You May Need to Live Together
You generally need to share the same household with the person for the full tax year to claim her exemption, but the IRS does understand it's not always that simple. It has an exception rule, which are listed in IRS Publication 501. For example, an adult niece, father-in-law and half brother don't have to live with you for a single day to satisfy this requirement.
It's unlikely you'll be able to claim an adult who works due to the gross income requirement of the qualifying relative rules. Essentially, it's no go if the adult's annual income -- excluding all tax-exempt earnings -- is equal to or greater than the exemption. Gross income commonly includes wages, self-employment earnings, interest and unemployment benefits. Her obligation to report the income on a tax return or not isn't relevant when evaluating the gross income restriction.
Figuring Financial Support
Claiming an adult as your dependent also means you pay for more than half of her essential living expenses, like her share of the rent, groceries, utilities, and transportation costs. If you live together, you'd allocate 50 percent of the housing-related expenses to your own support and the other half to hers. Once you figure out what her total support needs are, her ability to pay is irrelevant -- only consider who actually pays for each item to see if you're covering more than half.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.