A Brief Introduction About the Multiple Support Agreement
Any taxpayer is eligible for tax exemption if he or she qualifies as a relative and proves that they provide for more than 50% of the support cost. This 50% slab can be met by multiple people together by coalescing their resources to financially supporting the relative. In this scenario, these people need to sign the agreement (purpose, 2019). Without this agreement and without filing the IRS form 2120, they will not be able to get the desired benefit.
The dependent, in this case, needs to pass the relationship test eligibility. The dependent here should be a lineal descendant or ancestor except for his or her spouse. In case when multiple children contribute together for their aged parents, have a valid multiple support declaration, and have filed the IRS form, only one child out of the many is eligible to claim the exemption in a year.
Who Takes the Multiple Support Agreement?– People Involved
The taxpayers who are jointly involved in supporting a dependent relative, financially take this agreement, to claim tax exemption. In this agreement, two or more people take part. By signing this agreement, all the financial supporters agree to the fact that one out of them is eligible to claim the tax exemption this year. For the effectiveness of the agreement, each taxpayer who signs the agreement should be paying 10% of the dependent’s financial support.
Purpose of the Multiple Support Agreement– Why Do You Need It?
When multiple taxpayers together claim to pay over 50% of a dependent’s financial support, but no one individually provides for 50% and above financial support, then the agreement is signed which permits one of them to claim that person as a financial dependent in order to avail the tax exemptions for that year (TurboTax, 2019).
The qualifiers who in this financial year are not claiming for the tax exemption need to sign the multiple support declaration or Form 2120. It basically helps one out of the many to avail the tax benefits, by letting others agree that this year’s financial support was provided by one of them, which in other cases would not be possible as all of them would be paying for the expenses of the common dependent, but nobody would be able to avail the tax benefits (Multiple Support Agreement, 2019). This agreement allows them to utilize the benefits without any issue from the other relevant parties, as this agreement provides a mutual support definition.
The agreement rule states that the tax exemption will go to only one member at a time on the condition that the group satisfies the three requirements. First requirement being, one member provides over 10% of the financial support. The second requirement being, all the contributors together provide over 50%. Finally, the third requirement is, each member of the group, could claim the dependent, had he or she provided over 50%.
Contents of the Multiple Support Agreement– Inclusions
The contract includes the following: –
- Names – The content of the agreement includes the name of the qualifying dependent relative, name of the eligible member of the group claiming the dependent relative for tax this year and names of all the eligible members of the group paying over 10% of the financial support (TurboTax, 2019).
- Address – This requires the residential address of the dependent relative, eligible member claiming the tax exemption, and other members of the group.
- Social Security Number – Gives the social security number of all the stakeholders of this agreement, namely the dependent relative, eligible member claiming the tax exemption, and other members of the group.
- Validity – The agreement should have a validity date too to specify the applicability duration of the agreement between its parties.
- Objective – The contract must lay down a brief explanation of the agreement, what it is about, and why it is being signed. This defines the purpose of the agreement.
- Roles of the Group Members – This provides information about the members involved in supporting the relative dependent. It explains who will be claiming the dependent this year for tax exemption and who are the members of the group contributing to 10% and over towards the financial support.
- Financial Support Details – This agreement should include the financial support details being furnished by every member of the group for information purposes.
- Multiple Support Declaration – This declaration also involves form 2120 to be attached along, which is a multiple support declaration form.
How to Draft the Multiple Support Agreement?
- The most important thing to keep in mind is, who are the parties of this contract. The member of the group supporting the dependent and the dependent himself are the parties to this agreement, their name, address, social security number, etc.
- The second step is to mention the purpose of the agreement (TurboTax, 2019). This section constitutes the details about why this agreement is being signed. Mention that this is a multiple support declaration between the member parties to agree to one of the members to claim the dependent for tax benefit.
- The third step mentions the duration of the agreement, which is of extreme importance. The related parties should be aware that this agreement would stand void for that particular year (Multiple Support Agreement, 2019). It will have a commencement date and an end date mentioned explicitly.
- The crux of this agreement would provide a mutual support definition. It will define how the agreement would function. This agreement would enable one of the members to claim the qualifying dependent for tax exemption this year (purpose, 2019).
- For all these steps to be followed, it is important to have the right agreement format. Law agents can provide the templates. Ensure that you use simple English for the same.
- Post all this, proofreading of the agreement must be done to verify all the details and information mentioned in the agreement.
- The final draft of the agreement must be vetted from a lawyer for better results.
[ Also Read: Tax Agreement ]
The support providing members of this agreement can negotiate in terms of the role changes and obligations associated with this agreement. Each member would like to benefit from this opportunity when everyone is involved in the expenses (TurboTax, 2019). This negotiation must happen before the agreement is signed. Also, the parties involved should be well aware of the facts of this agreement before any negotiation starts.
Benefits and Drawbacks of the Multiple Support Agreement
Benefits – Following are the benefits of mutual support agreement:
- Defines the Terms: It intends to lay out the roles and duties of all the member parties involved. In detail, it defines who is eligible to claim the qualifying dependent and the tax-exempts and also defines the other member supporters of the group that pays over 10% of the financial support.
- Enhances Implementation: Such a written mutual support agreement augments the implementation opportunity. It helps in avoiding any legal disagreements later on. Laws are in place to dictate this agreement (TurboTax, 2019).
- Limits Flexibility: A formalized agreement restraints the related parties to operate away from the agreement; it binds them to go according to the agreement. So, if you have a signed agreement from all the parties, you will not have a threat of any member backing out from considering you as the claimant of the qualifying dependent that particular year.
Drawback – It is hard to think about any drawback of the mutual support agreement as such. The drawback of such an agreement is that such a written agreement involves time (purpose, 2019). Also, the issue may only arise if the agreement is incomplete or without all the necessary details. Hence a thorough evaluation of the agreement must be done. Mutual support definition in the agreement should be comprehensive. It should not miss the multiple support declaration form.
What Happens in Case of Violation?
A nicely drafted multiple support agreement is the best mutual support definition one can have. It solves the problems of so many taxpayers providing financial benefits together to a relative and can also claim the tax exemption if everyone agrees to it (TurboTax, 2019). This agreement provides them with an opportunity to reduce their taxes when the costs are shared among various people. Signing agreement and multiple support declaration also helps them avoid any issues later of having anonymous people claiming that they are the care-takers of the dependent
The ultimate aim of creating a multiple support agreement is to benefit the taxpayers. Form 2120(1) is used by taxpayers to claim a dependent relative for their tax returns, but this is not very beneficial under normal tax laws. However, when there are other people also involved in the same dependent care, and they agree to you claiming him as dependent for this year, you can avail good benefits. In this way, all the people included in the agreement can avail of the benefits periodically by signing this agreement.