When it comes to your tax burden, claiming a dependant on your tax return might make all the difference. Adding a tax dependent may entitle you to various tax breaks, such as the child tax credit and the child and dependent care credit, which decreases your taxable income and tax liabilities. It also gives you the option of filing as a head of household rather than a single filer, if you were previously a single filer.
Before you claim someone as a dependant on your tax return, be sure they fulfill all of the Internal Revenue Service (IRS) standards for a dependent.
- If a taxpayer has eligible dependents, they may claim a variety of credits or deductions on their taxes.
- Children are the most frequent dependents, although other dependent family members may also qualify.
- Internal Revenue Code (IRC) tests determine a person’s eligibility to be a taxpayer’s dependant for tax purposes.
Who Is a Tax Dependent?
A dependant is commonly described as someone for whom you provide financial or other support. Not everyone you look after qualifies as a dependant for tax reasons.
The IRS allows two types of tax dependents:
- Qualifying children
- Qualifying relatives
Claiming Children as Tax Dependents
The IRS has established a few guidelines to assist you in determining if you have a qualifying child or family. A qualified kid is defined as a dependant who meets all six of the following requirements:
- The Citizenship Test: Typically, a qualified kid must be a US citizen, a US resident alien, a US national, or a Canadian or Mexican resident. There are, however, exceptions for adopted children who are not US citizens but resided in your family for the whole year.
- The Relationship Test: According to the IRS, a natural child, an adopted kid, a stepchild, or an eligible foster child is a child. A eligible kid may also be a sibling, half-sibling, stepsibling, or descendant of any of the above (a grandchild or nephew, for example).
- The Residency Test requires a qualified kid to live in the same household as the taxpayer for more than half the year. There are several exceptions for short-term absences. If a qualified kid is absent from home due to school, vacation, custody arrangements, sickness, military service, or business, the child will still fulfill the residence requirement.
- The Age Requirement: A qualified kid must be under the age of 19 or both under the age of 24 and enrolled full-time for at least five months of the year. Someone who is chronically and utterly incapacitated has no age restriction. Unless the youngster is completely and permanently crippled, they must also be younger than you (or your spouse if you file a joint return).
- The Support Test: The person being claimed as a dependant must not have paid more than half of their own support. If you’re attempting to claim someone who works and partly takes care of themselves, you must be able to verify it.
- The Combined Return Test: A dependant who is married and files a joint return with a spouse does not qualify as a qualifying kid. The sole exception to this rule is if the dependent and spouse are not obligated to file taxes and merely file in order to get a refund.
Qualifying Children Tests and Various Credits
The six tests listed above are the fundamental requirements for a qualified kid, however depending on the tax credit you’re attempting to claim, there may be extra requirements or alterations to the tests:
- Child and Dependant Care Credit: The person claimed as a dependent must fulfill the six fundamental requirements, however the age test has been modified. The dependant must be under the age of 13 to qualify for the child and dependent care credit, unless the person is permanently or completely incapacitated. When parents divorce, the custodial parent is the only one who may claim the child and dependent care credit, regardless of whether the noncustodial spouse declares the kid as a dependant on their tax return.
- Child Tax Benefit: For 2021, the credit is $3600 for children under the age of six and $3000 for children aged six to seventeen. The credit is completely reversible. In 2022, the credit is reduced to $2000 per kid up to the age of 16. A maximum of $1500 is refundable based on income level; to be eligible, you must have earned income of at least $2500.
- Earned Income Credit (EIC): To be eligible for the EIC, a child must fulfill just four of the basic dependent tests: relationship, residence, age, and joint return. In addition to completing those four fundamental requirements, the kid must have spent more than half of the year with you in the United States.
Tie-Breaker Rules for Determining a Qualifying Child
If a kid qualifies as a qualifying child for two taxpayers, the IRS tie-breaker criteria should be utilized to decide which taxpayer obtains the tax benefits:
- If just one taxpayer is the kid’s parent, the youngster will be the parent’s qualifying child.
- If both taxpayers are the kid’s parents and do not file a joint return, the parent with whom the child resided for the “greatest length of time throughout the year” will be the parent who may claim the child.
- If the kid lived with both parents for an equal period of time, the tax advantages are available to the person with the greatest adjusted gross income (AGI).
- If none of the taxpayers is the child’s parent, the benefits are available to the taxpayer with the greatest AGI.
Claiming Relatives as Tax Dependents
Some dependents may not qualify as qualifying children, but they may fulfill other IRS rules and tests, allowing you to qualify for some tax benefits. A qualified relative must also fulfill the following four conditions in addition to the combined return and citizenship tests:
- The person cannot be a qualifying kid for anybody else in order to be a qualified relative. In other words, if a dependant does not fulfill the qualifying kid standards for you or another taxpayer, they are not a qualified related.
- A qualifying relative may be a kid or descendant of a child, a sibling, a stepsibling, a descendant of a sibling, a parent or stepparent, a parent’s ancestor (grandparent, great-grandparent, etc.), an uncle or aunt, a father-in-law or mother-in-law. These relatives are under no obligation to reside with you. Alternatively, the qualified person might be an individual who stays with the taxpayer for the full year, regardless of whether the individual is related to the taxpayer, as long as their connection does not contravene local law.
- The dependent’s income cannot exceed a particular amount under the gross-income test. That sum is $4,300 for the 2021 tax year. It will increase to $4,400 in 2022.
- Support Test: To be a qualified relative, a dependant must have received more than half of their support from the taxpayer. Take note of the distinction between the support test for a qualifying relative and the support test for a qualifying kid. The taxpayer must establish that the dependent (the kid) contributed half or less than half of their own support for a qualifying child; for a qualified relative, the taxpayer must prove that the taxpayer paid more than half of the dependent’s support.
The standard deduction amount for a person who may be claimed as a dependant by another taxpayer for taxable years starting in 2022 cannot exceed $1,150, or the sum of $400 and the individual’s earned income, whichever is larger.
The Bottom Line
If your dependent-care situation is complicated, identifying whether a person is a qualifying child or relative might be difficult. If you are unsure whether a person is a dependant, call the IRS at 1-800-829-1040 or visit a local IRS office.
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