Exemptions are a quick way to save money when you file your tax return. In addition to a personal exemption, taxpayers can take an exemption for each dependent they claim, known as the dependency exemption. There are a few requirements that parents must meet in order to claim an exemption for each dependent. The exemption amount is equivalent to the personal exemption: $4,000. There are two different categories for dependents, qualifying child and qualifying individual, and each has a different set of rules and regulations.
Qualifying Child
There’s four different requirements a qualifying child must meet in order to claim the dependency exemption:
- Relationship: The dependent must be your biological child, stepchild, and adopted children or eligible foster children. The dependent may also be a grandchild, sibling or stepsibling, niece or nephew who are younger than the person claiming the dependency exemption. The dependent must also be under age 19, or under age 24 if they are a full-time student. If the dependent is permanently disabled, there is no required age limit. Additionally, the dependent must reside in the taxpayer’s household for more than half of the year.
- Support: The qualifying child must rely on the claiming taxpayer for more than half of his or her support. This means that the child cannot provide more than 50% of their own support, but scholarship awards are not counted toward support figures. Because the taxpayer who claims the dependent is generally accountable for most of the expenses related to the child, the IRS hasn’t set a gross income test for qualifying children. If the parents are divorced, only the parent who actually supports the child over 50% of the time can claim the dependency exemption, unless otherwise stated in a divorce decree or separation agreement.
- Residency: the dependent must be a citizen of the United States, or a resident of either the U.S., Mexico, or Canada.
- Filing Status: The dependent can’t file a joint return if they are married by the conclusion of the tax year.
Qualifying Individual
Taxpayers may be able to claim an individual that they support that is not their child. Similar to the requirements for a qualifying child, in order to be a qualifying individual, the dependent must meet ALL of the following in their entirety:
- Relation or Household Member: the dependent has to be a relative, whether they live with you or not, such as a parent, or a member of your household for the entire tax year. Certain relationships, such as grandchildren, great-grandchildren, in-laws, siblings and other blood-related persons do not have to live in your house, while other relations, such as cousins have to spend the whole tax year in your home.
- Gross Income: the dependent you claim has to have a gross income lower than the exemption amount of $4,000. Gross income is defined as money and other income that is taxable, including the portions of Social Security benefits which are taxed.
- Taxpayer support: You must provide over half of the support for the person you are claiming as a dependent. In order to calculate this figure, you need to know the person’s income versus their living expenses, and then calculate your portion of the expenses that you pay. Benefits received from the government errs on the side of the dependent and classifies as support for themselves. Support includes education expenses, food, entertainment, medical expenses, and housing.
- Residency: the qualifying individual has to be a citizen of the U.S., or a resident of the U.S., Canada or Mexico.
- Filing Status: Married dependents can’t file a joint return with their spouse unless the sole purpose is to claim a refund, and both spouses have income under the exemption amount.
