As the U.S. population ages, more and more older Americans are living with tax-paying relatives. In addition, many children, grandchildren, nieces, and nephews are sharing a household or receiving financial support from a taxpayer. Considering how large dependent tax credits can be, it pays to know the rules regarding who can qualify as a dependent.
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The value of dependents
Beginning in 2018, taxpayers began to receive credits instead of deductions for qualified dependents. Unlike deductions, which only lower your taxable income, credits are subtracted from the amount you owe on a dollar-for-dollar basis, which can result in substantial tax savings. Here are the values of some of the credits:
- The Child Tax Credit—$2,000 per qualifying child
- Additional Child Tax Credit—up to $1,400 per qualifying child (the refundable portion of the Child Tax Credit)
- Credit for Other Dependents—up to $500 per qualifying dependent
In addition to these credits, dependents might qualify you for other tax savings. Some of these include:
- The Earned Income Tax Credit
- The Child and Dependent Care Credit for daycare expenses
- Medical expenses tax deductions
Who qualifies as a dependent?
Each dependent credit and deduction is governed by IRS rules. These rules cover relatives and non-relatives alike. Most tax credits are claimed for relatives who fall into one of two categories, each of which has different rules:
- Qualifying children
- Qualifying relatives
To qualify as dependents, both children and other relatives must meet some basic requirements:
- Citizenship or residency. The person you claim as a dependent must be a citizen of the United States, a U.S. national (born in or having a parent who was born in a U.S. possession), a U.S. resident (aka a green card holder), or a resident of Mexico or Canada.
- Claimed only by you. The person you claim as a dependent cannot be claimed on anyone else’s tax return—including their own. If they file their own taxes and don’t specify that they can be claimed as a dependent by someone else, you cannot claim them on your tax return. You also can’t claim them if they claim a child or other dependent on their tax return.
- Not married filing jointly. The rule against being claimed on another return extends to those who are married filing jointly unless the filing is solely to obtain a refund of estimated or withheld taxes. For example, if you have a son who qualifies as a dependent in every other way but files a joint return with his spouse, you typically can’t claim him as your dependent.
To qualify as a dependent, a child must satisfy these additional requirements:
- Be related to you or be your adopted or foster child. The child you claim as a dependent can be your birth child, an adopted child, a stepchild, or an eligible foster child. Your dependent can also be your sister, brother, half-sister, half-brother, stepsister, or stepbrother, or stepsister. You can also claim the offspring of any of these as a dependent.
- Fulfill the age requirement. To qualify, the dependent child must be under age 19, or under age 24 if a full-time student. If your child is permanently and totally disabled, there is no age limit.
- Reside with you. There are several exceptions, but in general, your dependent child must reside with you for more than half the year.
- Receive most of their support from you. Your dependent child may work and earn money, but you must provide more than half of your child’s financial support to qualifying.
- Not be claimed by anyone else. This rule often comes into play when children split their time between divorced parents. If you are in this situation, refer to the “tie-breaker rules” that are set forth in IRS Publication 501, which discusses the parentage, income, and residency rules for claiming a dependent child.
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Other qualified relatives
Supporting your aging parents or other relatives does not always mean you can claim them as dependents. Here are a few additional requirements the dependent relative must fulfill:
- The person resides with you. To qualify, your relative must reside with you all year (or else must be on a list of exceptions covering about 30 kinds of relatives in Publication 501).
- Earns less than $4,200 per year. The relative you claim as a dependent can’t have a gross income exceeding $4,200 (the tax year 2019).
- Receives most of their support from you. As with dependent children, your relative dependent can receive income, but you are required to supply more than half of the dependent relative’s total financial support each year.
- Is claimed only by you. You must be the only person claiming the dependent relative. He or she cannot be claimed by another relative or person. In addition, you can only claim the same person once. For example, you cannot claim your child as both your child and as a relative.