Gross Income Test
To meet this test, the dependent's gross income for the tax year must be less than the personal exemption amount ($3,700 for 2011). Gross income is all income in the form of money, property, and services that is not exempt from tax. Specific examples are found in Publication 17, Personal Exemptions and Dependents. Remember this test applies only to qualifying relatives, not to qualifying children. For purposes of this test, the gross income of an individual who is permanently and totally disabled does not include income for services the person performs at a sheltered workshop.
Joe is 65 years old and lives with his son and daughter-in-law. In 2011, Joe's taxable pension income was $4,700. Joe's son and daughter-in-law cannot claim a dependency exemption for Joe because Joe's income exceeds the exemption amount for 2011, which is $3,700.