"Qualifying" Dependents & Receiving Dependent Exemptions
The IRS defines a dependent as a qualifying child or relative of the taxpayer. They entitle the taxpayer to claim a dependent exemption on their return. For every exemption on the filer's 2013 return, income that is subject to tax is decreased by $3,900. A spouse cannot be qualified as a dependent and both children and relatives have specific criteria to qualify as a dependent.
A qualifying child can be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them that is: under the age of 19 at the end of the year or under the age of 24 and was a student or at any age and permanently disabled. To qualify, they cannot provided more than half of their own financial support and must have lived with the taxpayer for more than half of the year (exceptions being at school, on vacation, on business, away for medical care, military service, or detention in a juvenile facility).
In order for them to qualify as a dependent, they need to be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico. This qualifying child cannot be married if they are to be listed as your dependent. They also must be younger than the filer. Lastly, in order for someone to claim them as a dependent, they cannot be claimed as a dependent of someone else's during the same filing year. If the qualifying child adheres to all the above they can be listed as a dependent.
The qualifying relative to be claimed as a dependent, must, like the child, be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico. They must also not be married or capable of included in someone else's return. Some additional requirements to claim the deduction are:
- They are either a: son, daughter, stepchild, foster child, or a descendant of any; brother, sister, or a son or daughter of either of them; father, mother, or an ancestor or sibling of either of them; stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
- They are not the qualifying child dependent of any other taxpayer
- They have a gross income of less than $3,900 (for 2013 filing year)
- The taxpayer provided over half of their financial support
If all of these are apply to a taxpayer's situation, they can claim the individual by going to line 6c, columns 1-3 on the Form 1040. They must not check the box on line 6c, column 4.
Special Rules and Exceptions
If the dependent is a legally adopted child, and the taxpayer does not know or have their social security number, they will need to obtain an adoption taxpayer identification number for them. This can be done using W-7a form. If the dependent is not a U.S. citizen or resident alien, it is likely that an ITIN will need to be used instead of the social, this is requested by using a W-7 form.
While dependents generally must live with the taxpayer to qualify, there are some situations in which people can qualify without doing so. Children, parents or relatives temporarily living elsewhere because of a filer's conflict with business, illness or military service should still qualify as, this is a temporary relocation and they plan to return to live with them. Note: the individual must have still paid over half of the housing costs for the dependent during a temporary stay elsewhere.
If a qualifying relative is permanently disabled, certain incomes performed at a sheltered workshop may be excluded from the $3,900 or less income.
If there is no majority support for a relative, a multiple support agreement will allow for several people to take turns claiming that individual on their taxes (i.e. when more than one child contributes to the support of an elderly parent).
Q&A: How much will a dependent reduce your taxes in 2018?
The Tax Cuts and Jobs Act has brought in some new changes to tax law, including the impact dependents have on your return. One of the biggest changes is that there is no longer an exemption for dependents. However, the standard deduction amount has nearly doubled, which may help make up for losing this exemption.
The new tax law also brings some helpful changes to dependent credits. The child tax credit has doubled to $2,000, which also includes a larger refundable portion. If you have a dependent who is not a child, you can also claim a new, non-refundable credit of $500. Both of these changes can help lower your tax bill. If you end up getting a refund, the child tax credit could potentially increase that amount. Note that the tax credits do begin to phase out if your income exceeds certain thresholds.