Are you wondering who can qualify as a dependent on your tax return? This is your guide to assessing whether one of your family members may be able to be classified as a qualifying dependent when you file your taxes.
Dependent Tax Credits, Deductions and Exemptions are Available to You!
Anyone with a family needs to be aware of how the IRS may define someone as a dependent. This is important for the purposes of income tax as it could save you a huge amount of money, so it’s an issue that’s worth looking into.
In the 2018 tax year, each qualified dependent reduces how much of your income is eligible to be taxed by what’s known as the exemption amount. This was $4,050 in 2017. The exemption amount for 2018 has been increased to $4,150 As you can see, these amounts can soon add up if you have a few dependents in your family.
However, these exemptions have now been replaced by a standardized deduction and a big child tax credit, or an alternative dependent credit.
Whether you have a dependent, for tax purposes, also determines other benefits, like tax credits. Most of these tax credits are only available to taxpayers who have dependents. These include the earned income tax credit, the child tax credit, and the dependent care credit.
Additionally, the presence of qualified dependents can help you remove ordinary day-to-day expenses from your tax bill, such as daycare and medical expenses. Qualified dependents can mean the difference between paying a significant tax bill and getting a refund from the IRS.
Luckily, the rules aren’t particularly complicated. The problem is applying the rules to your specific family situation. Common points of confusion include: your cousin who stays with the family for a few months of the year, your son who’s going to college, or your daughter who works part-time to fund her studies.
Our guide is going to help you to determine whether someone counts as a qualified dependent.
Who Qualifies as a Dependent in the Eyes of the IRS?
The IRS is extremely specific about who qualifies as a dependent for tax purposes. They cover just about every situation imaginable.
For practically everyone, there are two types of dependents: either a qualifying child or a qualifying relative. Both groups have different rules associated with them.
There are three questions you need to answer to determine whether someone may qualify as a dependent.
- Are they a Resident or Citizen?
Qualified dependents must either be a resident or a citizen. This also includes residents of Mexico and Canada. They must meet this requirement in order to qualify. For example, you may have a foreign exchange student living with you. You can only use them as a qualified dependent if they happen to have resident status.
- Is Anyone Else Claiming the Same Tax Benefit for a Qualifying Dependent?
Nobody else can claim the same person as a dependent. It’s also the case that the dependent can’t take a personal exemption for themselves if you want to claim them as a dependent.
- Do they File a Joint Tax Return?
You also can’t claim someone as a dependent if they are married and filing a return jointly with their spouse. For example, maybe your teenage son is married and you’re supporting him. You can’t claim him as a dependent if they file a joint tax return with their spouse.
Claiming an Exemption for a Qualifying Child
Now that you have answered those three questions, we can look at claiming an exemption for a child. We are going to list a few questions and you must answer “Yes” to all of them if you are able to claim them as a dependent.
- Are they related to you? This should be easy, but remember it also applies to foster children, half-siblings, and adopted children. Also, the offspring of any of them can be claimed as dependents.
- Are they the right age? College students in full-time education under 24 and children under age 19 qualify as dependents. Children who are permanently and completely disabled can be of any age.
- Who do they live with? Your child must live with you for at least half the year. There are exceptions, however.
- Are you providing them with financial support? Your child can still have a job, but their income can’t account for more than half of the total support given.
- Is anyone else claiming them? This is mainly relevant for divorced parents. IRS Publication 501 is clear about the tie breaker rules that determine which parent should claim the child on their tax return. These include things like income and length of time spent with each parent.
Claiming a Qualifying Relative
You may also be caring for an elderly relative, such as parents or grandparents. There are also strict rules regarding whether you can claim a qualifying relative as part of your tax return.
- Where does the qualifying relative live? They must either live with you for the entire year or qualify as “relatives who do not live with you” as detailed in IRS Publication 501. There are 30 registered relative types.
- How much money did they make? The qualifying relative can’t have earned more than $4,150 in gross income for the upcoming 2018 tax year.
- Do you provide them with financial support? Your support must account for more than half of the support the qualifying relative receives each year.
- Is anyone else claiming them as a qualifying relative? The same person can only be claimed on a single tax return.