What Is Multiple Support Agreement?
A multiple support agreement is a tax document that allows a taxpayer to claim an individual as a dependent for tax purposes, even if that taxpayer does not provide more than half of the dependent's total financial support. This agreement is applicable when multiple people collectively contribute over 50% of an individual's support, but no single person provides more than half. It falls under the broader category of tax planning and strategy, specifically relating to dependency exemptions and credits within personal finance. The agreement ensures that at least one eligible contributor can claim the dependent and benefit from associated tax advantages, such as certain tax credits36, 37.
History and Origin
The concept of dependency exemptions and the need for rules governing shared support emerged with the evolution of the U.S. income tax system. When the federal income tax was established in 1913, personal exemptions were introduced. An additional exemption for dependent children was added in 1917.34, 35 As the tax code became more comprehensive and families often pooled resources to support relatives, particularly elderly parents, situations arose where no single individual met the "more than half" support test to claim a dependent.33 To address these scenarios and allow families to still benefit from dependency provisions, the Internal Revenue Service (IRS) developed specific rules, formalized through IRS Form 2120, the Multiple Support Declaration. This form enables a group of contributors to designate one among them to claim the dependent, provided certain conditions are met.31, 32 The ability to claim a dependent, even through a multiple support agreement, remains relevant for various tax benefits despite the suspension of the personal exemption deduction from 2018 through 2025 by the Tax Cuts and Jobs Act.29, 30
Key Takeaways
- A multiple support agreement is used when several individuals collectively provide more than half of a person's support, but no one person provides over 50%.
- It allows one eligible contributor to claim the dependent for tax benefits, such as the credit for other dependents.
- The agreement requires all other eligible contributors (those providing over 10% of support) to waive their right to claim the dependent.
- IRS Form 2120, Multiple Support Declaration, is the official document for this agreement.
- This arrangement is particularly common in families supporting elderly parents or other relatives.
Formula and Calculation
While there isn't a direct "formula" for a multiple support agreement itself, the core concept revolves around the calculation of total support and individual contributions. To determine if a multiple support agreement is applicable, the following conditions related to support must be met:
- Total Support Test: The group of individuals must collectively provide more than 50% of the dependent's total support for the calendar year.
- Individual Contribution Test: Each person who is part of the agreement and could have claimed the dependent (but isn't) must have provided more than 10% of the dependent's total support.
- No Single Contributor Exceeds 50%: No single individual, whether part of the agreement or not, can have provided more than 50% of the dependent's total support.
"Support" includes basic living expenses such as food, lodging, clothing, education, medical care, and transportation.27, 28 Understanding how to calculate gross income and total support is crucial in determining eligibility.26
Interpreting the Multiple Support Agreement
Interpreting a multiple support agreement primarily involves understanding its implications for tax benefits. The agreement designates one specific taxpayer to claim the dependent, thereby enabling that taxpayer to potentially claim tax credits, such as the credit for other dependents, that would otherwise be unavailable due to the shared support situation.24, 25 The purpose is to prevent multiple individuals from claiming the same dependent, ensuring clarity and compliance with IRS regulations.22, 23
Crucially, all other eligible individuals who contributed more than 10% of the dependent's support must sign a statement (often on IRS Form 2120) waiving their right to claim the dependent for that tax year. This signed statement is not filed with the tax return but must be kept in the claimant's records.20, 21 The person claiming the dependent must attach Form 2120 to their tax return.19
Hypothetical Example
Consider the case of the elderly Mr. Henderson, who has three adult children: Alice, Bob, and Carol. Mr. Henderson's total annual support expenses are $30,000. Alice contributes $10,000 (33.3%), Bob contributes $9,000 (30%), and Carol contributes $8,000 (26.7%). The remaining $3,000 (10%) comes from Mr. Henderson's own small pension income, which is not enough for him to support himself.
In this scenario, no single child provides more than 50% of Mr. Henderson's support. However, together, Alice, Bob, and Carol contribute $27,000, which is more than 50% of his total support. All three children contribute more than 10% individually.
To claim Mr. Henderson as a dependent, they can enter into a multiple support agreement. They decide that Alice, who contributes the most, will claim him for the current tax year. Bob and Carol must each sign a statement (or complete their portion of Form 2120) agreeing not to claim Mr. Henderson as a dependent for that year. Alice will then attach the completed Form 2120 to her federal income tax return. This allows Alice to potentially claim certain tax benefits associated with having a qualifying relative as a dependent.
Practical Applications
Multiple support agreements are most commonly applied in situations where several family members share the financial responsibility for a qualifying relative. This often includes adult children jointly supporting an elderly parent who does not have sufficient income to cover their own living expenses.18 It can also apply to siblings supporting a disabled relative, or other extended family arrangements.
Beyond family dynamics, these agreements illustrate broader principles in tax law related to dependents. They ensure that even in complex support structures, the tax code can accommodate the reality of shared financial burdens, allowing for the designation of a single claimant. This process, overseen by the Internal Revenue Service (IRS), streamlines the claiming of dependency exemptions and related tax credits. The IRS provides detailed guidance on these rules in publications such as IRS Publication 501.16, 17
Limitations and Criticisms
While a multiple support agreement offers a valuable mechanism for claiming dependents in shared support situations, it has specific limitations and is subject to certain criticisms.
A key limitation is that it generally applies only to "qualifying relatives" and not to "qualifying children."14, 15 The criteria for a qualifying child are typically more stringent and have tie-breaker rules that often negate the need for a multiple support agreement. For instance, a child living with a parent for more than half the year usually designates that parent as the custodial parent for tax purposes, often simplifying dependency claims without such an agreement.
Furthermore, a person claimed as a dependent through a multiple support agreement cannot be considered a "qualifying person" for the purpose of claiming the Head of Household filing status.13 This means even if the individual meets other criteria, the taxpayer claiming them via a multiple support agreement cannot use this beneficial filing status based on that dependent.
Another practical challenge can be securing the cooperation and signed statements from all other eligible contributors. While the intention is to facilitate tax benefits, family dynamics or disagreements over financial planning can sometimes make obtaining these waivers difficult. The agreement also requires careful recordkeeping by the taxpayer claiming the dependent, as the signed statements must be retained, though not filed with the return.12
From a broader perspective, the complexity of dependent rules, including those for multiple support agreements, can be a point of confusion for taxpayers. The need for a specific form and the strict adherence to support tests underscore the intricate nature of certain aspects of the U.S. tax system.
Multiple Support Agreement vs. Support Test
The "multiple support agreement" and the "support test" are related but distinct concepts in U.S. tax law concerning dependents.
The support test is a fundamental requirement for claiming someone as a qualifying relative dependent. It states that, generally, the taxpayer claiming the dependent must provide more than half (over 50%) of that person's total financial support for the year. This is a crucial threshold in dependency rules. If a taxpayer provides 51% or more of the support, they typically meet this test.
A multiple support agreement, on the other hand, is an exception to the general support test. It comes into play specifically when no single individual provides more than 50% of a person's support, but a group of eligible individuals collectively provides more than 50%. In such cases, if the individual meets other dependent criteria, the multiple support agreement allows one member of that group (who contributed over 10% of the support) to claim the dependent, provided all other eligible contributors agree in writing to forgo their claim. This agreement essentially resolves situations where the standard support test cannot be met by any single party, facilitating the claiming of tax benefits. It is formalized through IRS Form 2120, the Multiple Support Declaration.10, 11
FAQs
What is IRS Form 2120 used for?
IRS Form 2120, also known as the Multiple Support Declaration, is used to designate which eligible taxpayer will claim a qualifying relative as a dependent when multiple people contribute to that individual's support, but no single person provides more than half.8, 9
Who needs to sign a multiple support agreement?
The taxpayer claiming the dependent must complete and attach Form 2120 to their tax return. Additionally, every other eligible person who contributed more than 10% of the dependent's total support must sign a written statement agreeing not to claim the dependent for that tax year.6, 7 This ensures only one person claims the tax benefit.
Can a multiple support agreement be used for a child?
Generally, no. Multiple support agreements typically apply only to qualifying relatives, not qualifying children. The rules for claiming a qualifying child are different and often involve residency and age tests, with specific tie-breaker rules if more than one person could claim them.4, 5
What kind of support counts for the support test?
Support includes the cost of food, lodging, clothing, education, medical and dental care, recreation, and transportation. It generally covers all the basic necessities required for an individual's well-being.2, 3
Does a multiple support agreement affect other tax benefits?
Yes, it can. While it allows one person to claim certain tax benefits like the credit for other dependents, a person claimed under a multiple support agreement cannot be used to qualify for Head of Household filing status.1 Understanding the full impact on your tax liability is important.