We all know that supporting a dependent can cost you a bundle. You may not realize, however, that claiming a dependent can help you at tax time.
Both related and non-related dependents can save you money. Even though you may be shelling out thousands for food, shelter and care for your dependent, the IRS gives you tax breaks for your dependent child, relative, or non-relative in the form of tax deductions and tax credits.
Tax credits reduce your tax liability dollar for dollar; tax deductions reduce your taxable income. Both tax credits and tax deductions can save you money on your taxes and help boost your tax refund.
So what exactly is a dependent? And how can having them be a tax advantage? Let’s dive into the details. We will discuss the following:
What does it mean for someone to be a dependent?
For tax purposes, a dependent is someone who meets certain criteria and qualifies to be claimed as an exemption on another taxpayer’s tax return.
Typically, dependents are individuals who rely on you for financial support, such as:
- Children
- Elderly parents
- Other relatives
General Rules for Dependents:
- A dependent must be a U.S. citizen, a resident alien or national or a resident of Canada or Mexico
- A dependent generally can not be claimed on more than one tax return
- A dependent can’t claim a dependent on their own tax return
- You can’t claim your spouse as a dependent
- A dependent must be a qualifying child or qualifying relative
The key factors that determine whether someone qualifies as a dependent are as follows:
The key factors that determine whether someone qualifies as a dependent are as follows:
Relationship
Typically, (but not always) they are someone that is related to you.
For Example:
- Child
- Stepchild
- Foster child
- Sibling
- Parent
Certain other relatives, such as nieces, nephews, aunts, or uncles, may also qualify in certain circumstances.
Residence
In order to claim a dependent, they must have lived with you for more than half of the tax year. This can include temporary absences, such as summer and winter breaks taken from education, ongoing medical treatments, or vacations.
Support
If you provide more than half of the support for someone, you may be able to claim them as a dependent.
For them to qualify, you must have provided over half of their financial support during the tax year.
For purposes of this requirement, the term support includes expenses such as:
- Food
- Housing
- Clothing
- Education
- Medical care
In addition to the support requirement above, your dependent(s) can not have gross income exceeding a certain threshold. This amount is set annually by the IRS.
There are exceptions for certain types of income, such as
- Interest
- Dividends
- Scholarships
Filing Status
If you are claiming a dependent, they can’t file a joint tax return with their own spouse unless that return is filed solely to claim a refund. And if they filed separate returns, then there must be no tax liability for either spouse.
Age:
Note: This requirement is for qualifying children to be considered as a dependent; it does not apply to qualifying relatives.
- Under Age 19, or·
- Under age 24 if a full-time student, or
- Any age if permanently disabled
Social Security Number
A Social Security number is required for your dependent in order to claim them on your tax return and reap the benefits of the tax credits and deductions mentioned above.
If you had a new baby this year, make sure you have applied for their Social Security number, and that you have it when you get ready to file your taxes.
If you support your relative or a boyfriend or girlfriend and are claiming them as a dependent, you’ll also need to have their social security number when you file your taxes.
Remember:
You might be entitled to certain tax benefits if you are claiming dependents, such as the Child Tax Credit, the Earned Income Tax Credit, and certain education-related tax credits.
Before claiming someone as a dependent, it’s important to double-check they meet all the requirements.
You might be entitled to certain tax benefits if you are claiming dependents, such as the Child Tax Credit, the Earned Income Tax Credit, and certain education-related tax credits.
Before claiming someone as a dependent, it’s important to double-check they meet all the requirements.
Are your children considered dependents?
Children are commonly considered dependents for tax purposes. However, there are specific rules that must be met to claim children as dependents, including:
Relationship
The child must be one of the following:
- Biological child
- Adopted child
- Stepchild
- Foster child
- Sibling
- Half-sibling
Age
Note: This requirement is for qualifying children to be considered as a dependent, it does not
apply to qualifying relatives.
- Under Age 19, or
- Under age 24 if a full-time student, or
- Any age if permanently disabled
Social Security Number
Social security numbers are required. If you had a new baby this year, make sure you applied for their social security number and that you have it when you file your taxes.
In order to reap the benefits of the tax credits and deductions mentioned, you need to have their social security number. If you support your relative or a boyfriend or girlfriend and are claiming them as a dependent, you’ll also need to have their social security number when you file your taxes.
Residency
The person you want to claim as a dependent must have lived with you for more than half of the tax year. But if they spend some time away at college, don’t worry. They could still qualify.
Temporary absences, such as for school, vacation, or medical treatment, are generally considered as time lived with you.
Support
When determining if you can claim a dependent on your tax return, your financial obligations toward that person come into play. You must have provided more than half of the child’s financial support during the tax year.
Support includes expenses such as:
- Food
- Housing
- Clothing
- Education
- Medical care
Filing Status
Is your child married? If so, it’s important to note that if you want to claim them as a dependent, they can’t file a joint income tax return with their spouse unless the return is filed solely to claim a refund.
If they filed a separate income tax return from their spouse, then no income tax can be owed by either spouse.
Can other relatives be dependents?
In some cases, yes! Certain other relatives can qualify as dependents for tax purposes if they meet the criteria.
Let’s review the rules for claiming other relatives as dependents:
Relationship
The relative must be related to you in one of the following ways
- Child
- Stepchild
- Foster child
- Sibling
- Half-sibling
They can also be a descendant of any of these individuals, such as a grandchild, niece or nephew.
- Parent
- Grandparent
- Grandchild
- Aunt
- Uncle
- Niece
- Nephew
Additionally, they can be related to you by marriage. For example, they could be your:
- Son-in-law
- Daughter-in-law
- Father-in-law
- Mother-in-law
- Brother-in-law
- Sister-in-law
Residency
Similar as with your own children, your relative must have lived with you for more than half of the tax year. As with the situations discussed above, temporary absences apply.
Support
You must have provided more than half of your relatives financial support during the tax year. This includes expenses such as food, housing, clothing, education, and medical care.
Income
Your relative’s gross income for the tax year must be less than the income exemption amount set by the IRS for the tax year. There are exceptions to this income requirement, though, such as tax-exempt income or certain Social Security benefits.
Filing Status
Your relative can’t file a joint tax return with their spouse unless the return is filed solely to claim a refund of income tax paid, and no tax can be owed by either spouse if they filed separate income tax returns.
Can non-relatives be dependents?
Yes, you can claim non-relatives as dependents in some situations..
When you’re considering claiming a non-relative, keep in mind that these rules apply:
Residency
The non-relative must have lived with you for the entire tax year as a member of your household. The same temporary absences apply to these types of dependents.
Support
You must have provided more than half of the non-relative
financial support during the tax year. This includes expenses such as food, housing, clothing, education, and medical care.
Relationship
You can claim non-relatives as dependents, but in order to do this, your relative can not be eligible to be claimed as a dependent on someone else’s income tax return.
Gross income
The non-relative’s gross income for the tax year must be less than the exemption amount set by the IRS for that tax year. Similar to the income requirements for your relatives, there are exceptions for certain types of income, including tax-exempt income or certain Social Security benefits.
Citizenship or residency status
For at least part of the tax year, your non-relative dependent must be one of the following:
- US citizen
- US national
- US resident alien
- Resident of Canada or Mexico
Let’s review the benefits of claiming a dependent on your income tax return and how to claim your dependent:
Claiming someone as a dependent on your tax return can unlock a range of tax credits and deductions. Tax credits reduce your tax bill dollar for dollar, and tax deductions reduce your taxable income.
Both tax credits and tax deductions can save you money on your taxes and boost your tax refund.
Your kids are expensive, but take comfort in knowing that at tax time, you can reap the benefits of some tax credits and deductions that really add up and increase your tax refund if your child meets the criteria for a dependent.
In addition, tax credits, such as the Child Tax Credit, directly reduce your tax liability dollar for dollar, providing valuable savings on your taxes.
As you have read, these valuable tax credits and deductions can extend to relatives and non-relatives. Unsurprisingly, you get tax breaks for your children and relatives, if the requirements are met. But keep in mind that if you provide over half the support for someone other than your relative, you may be able to claim them as a dependent and take some valuable tax deductions and credits for them as well.
Relatives like your mom, dad, grandparents, grandchildren, or other blood relatives don’t have to live with you, but non-relatives like a boyfriend or girlfriend must live with you the entire year to claim them.
Similarly, tax deductions, such as medical expense deductions or education credits, lower your taxable income by reducing the amount of income subject to tax. Both tax credits and tax deductions can save you money on your taxes and boost your tax refund, providing much-needed financial relief for your family.
Who’s eligible to claim dependents
Eligibility to claim dependents on taxes hinges on various factors, primarily centered around your relationship with the dependent, financial support provided, and residency status.
Typically, as a parent–whether that’s biological, adoptive, or even a stepparent–you can claim children as dependents if you provide more than half of their financial support and the child resides with you for more than half of the year.
You can also sometimes claim other relatives, such as siblings, grandparents, aunts, uncles, and certain in-laws if they meet the criteria for support and residency as discussed above.
As a legal guardian with established custody, you can claim dependents if you provide more than half of the individual’s support.
In certain cases, you can even claim someone as a dependent if you’re not relatives. It’s important to note that you have to provide the majority of someone’s financial support, and they have to live with you for more than half of the year to qualify.
When trying to figure out if you can claim dependents, remember these two key rules:
- Only one taxpayer can claim a dependent in a given tax year.
- It’s crucial to ensure the dependent meets the stringent IRS criteria for eligibility.
How do you claim someone as a dependent?
Now that you’ve confirmed that your relative or non-relative qualifies as your dependent, what’s next?
You’ll need to claim them on your tax return. To do that, you’ll use your income tax return, Form 1040.
On your tax return, you’ll see that there is a section labeled “Dependents.” This is where you’ll provide their personal information, including their full name, date of birth, and Social Security number. You’ll also indicate your relationship to the dependent and whether they qualify for the Child Tax Credit.
Be sure to carefully follow the instructions on your income tax form to ensure accurate reporting of your dependents.
You may also be able to claim certain tax credits and deductions if your dependent is eligible.
Once you’ve submitted your tax return, it’s essential to keep accurate records and documentation to support your claim for dependents, including birth certificates, adoption papers, or custody agreements and financial records to verify support.
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