When tax season approaches, one of the most common terms you’ll hear is “dependent”. That’s because many credits and deductions, as well as which filing status you’re eligible to use, relate directly to whether you claim dependents, and if so, how many. First, you’ll need to understand the qualifications necessary to be considered a dependent.
Generally, children of the taxpayer qualify to be claimed as dependents, as they receive a majority of their financial support from the taxpayer. Dependents aren’t just limited to children however, as many other relatives may meet the criteria for specific tax benefits. For example, parents, grandparents, nieces, nephews, and others can all qualify to be claimed as a dependent if they meet either the rules of qualifying child or qualifying relative.
The criteria for qualifying child requires that they be less than 19 years old as of the last day of the tax year. Full-time students can be 24 or younger and still qualify. The age restriction does not apply to dependent children that are totally and permanently disabled.
Additionally, the child must have lived in your residence for over half of the year. Students can live on campus I a dorm and still meet this requirement, as it’s considered a temporary absence and your home is the permanent residence. Your dependent must actually be dependent on you financially, as you have to provide more than 50% of their financial support during the tax year.
With almost identical criteria to qualifying child rules, the qualifying relative dependent can also help you save money at tax time. There are no age or disability requirements, however the relative cannot be claimed by another taxpayer as a qualifying child. They must have resided with you for the whole tax year, not just half, though parents and siblings are exempt from this rule in certain situations. The entire income the dependent makes must be less than their personal exemption for the year.
Dependents are a big benefit to taxpayers, as they can save you a bunch. You’re able to claim a personal exemption for each dependent. Having dependents can make you eligible for the Earned Income Tax Credit, The Child Tax Credit, and Child and Dependent Care Credit. Additional credits exist for student dependents, such as educational credits and deductions.
When parents are divorced, dependency rights are generally granted to the custodial parent, though they can waive their right to claim the personal exemption for the child. In doing so, the other parents can claim the child as a dependent, though the custodial parent should still be eligible to claim the EITC and file as Head of Household if necessary.