If you are caring for or raising a relative, it is important to know how the taxing authority determines who is considered a dependent: before the 2018 tax return, you can significantly reduce your taxable income for each dependent. Even though the taxpayer is no longer allowed to deduct dependents, certain tax credits can still be used to reduce the tax liability. However, many taxpayers are not aware of the specific requirements for dependents. The following is a general overview, but like many areas of tax law, it is complex and there are often exceptions to the rules.
Who is a dependent?
A dependent is someone who is financially dependent on you or your spouse (if applicable) for food, clothing, shelter, medical care, and other necessities. This usually includes your children and relatives, but other people may also be considered dependents. However, there are two types of dependents for federal tax purposes: eligible children and eligible parents.
Qualifying Children
To be considered a qualifying child, the following five conditions must be met
- Must be your own child, your spouse’s child, an adopted child, or a foster child. Siblings and half-siblings are also eligible. Their descendants are also eligible.
- As a general rule, the person must be living with the family for at least six months. For brief absences, there are exceptions, such as childbirth or death. Parents who are separated or divorced may also treat their children differently in specific circumstances.
- Your kid must either
- Under 19 years of age at the end of the tax year and younger than you (or your spouse if applying jointly).
- A full-time student (for five months of the year) and 23 years younger than you (or your spouse if applying jointly); or
- A permanent or total disability (regardless of age).
- Child Support – Children cannot contribute more than half of the support.
- Joint Tax Returns – Eligible children may not file a joint tax return for the year unless they are claiming a refund of income tax withheld or estimated.
A child who is not considered an eligible child may be recognized as an eligible parent.
Qualifying Relative
A person may be considered an eligible parent (regardless of age) if they meet the following conditions
- No qualifying child – the person cannot be your eligible child or the eligible child of another taxpayer.
- Relationship – the person must be related to you (regardless of where they live) or have lived in the same household as you for one year. Relatives who do not have to live with you are
- Your children (biological children, adopted children, stepchildren, or descendants of these).
- your brothers and sisters (all brothers, half-siblings, and stepsiblings)
- Parents and grandparents (including step-parents, but not adoptive parents)
- Nephews or nieces (including nephews or half-siblings)
- Uncles or aunts
- In-laws (sons, daughters, fathers, mothers, brothers, and sisters).
- Partners, friends, girlfriends, and other friends may also be eligible for the relationship test if they have lived with you for a full year, do not exceed the income limit and your relationship is not against the law. Nevertheless, you are unable to list your life partner as a dependency.
- Income – you cannot earn more than $4,300 per year as gross income unless you are disabled and earn your living in a sheltered workshop.
- Support – must not provide more than half of your support in one year.
There are exceptions to the support rule for children of divorced or separated parents, for children who have been abducted, and for children with two or more support agreements.
Other qualifications.
Even if you pass the tests for a qualified child or qualified dependency. You cannot be claimed as a dependent if you do not meet these three qualifications.
- Dependent Taxpayer Test. Dependent taxpayers cannot claim another person as a dependent on their tax return.
- Common return test. Generally, dependents are married and cannot file a joint return. However, this does not apply if the sole purpose of the return is to claim a refund of income tax withheld or estimated.
- Nationality/Residency Status Verification. Dependents must be U.S. citizens, U.S. resident aliens, U.S. citizens, or residents of Canada or Mexico. Adopted children who have been members of the family throughout the year also fall under this criterion, regardless of nationality.
Eligible dependents must also have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). If they do not, the tax authorities will not allow them to be listed as dependents on the tax return.
Ask for outside help
If you would like to discuss a reasonable refund plan, filing an amended tax return, or other tax savings opportunities, consult the Best Individual tax accountant NYC.
