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The Definition of Dependent Was Revised by GOZA in December 2005. What Is a Dependent? Perhaps it’s time that George Orwell’s book “1984” should be re-titled “2004”. The fact that in 2004 we have seen the need to define who is a child and who is a spouse is truly Orwellian, and Bob Dylan’s song, The Times They Are a Changin’ is even more meaningful to us now! The new Working Families Tax Relief Act of 2004 (WFTRA ’04) has given us a new uniform definition of “dependent”, who shall from this day forth be known as a “Qualifying Child” or as a “Qualifying Relative.” The definition of dependent could operationally impact three areas of our retirement plans; the first is hardship withdrawals in that both the medical and tuition hardship safe harbors use the words children and dependent; the second is the QDRO rules as the definition of alternate payee includes child or dependent; and the third is in the deemed IRA plan amendment for the eligibility for savers tax credit which requires that to be eligible for this tax credit, an individual may not be claimed as a dependent. The definition change to dependent may not have any direct impact on our plan document as the document does not define dependent and does not cross-reference Code Section 152. However, the administration of the plan may be impacted. Stay tuned for more details on this soon. In addition, the change directly impacts personal income tax filings, as well health plans, flexible spending accounts, dependent care accounts and cafeteria plans. The changes are effective for tax and plan years beginning after December 31, 2004. Click here for a link to The Working Families Tax Relief Act of 2004. Section 152 defines dependent. The IRS has also issued Notice 2004-79 to clarify that this definition applies to health plans click here for a link to the notice. Bill Grossman, QPA
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