Rules for Claiming a Dependent on Your Tax Return

You can reduce your tax liability by claiming a dependent on your tax return. A tax dependent qualifies you for some tax benefits, such as the child tax credit and child and dependent care credit, which in turn reduces your taxable income and tax liability.

In order to claim someone as a dependent on your tax return, you must make sure that the person meets all the IRS requirements for a dependent. Find out how you can claim dependents for a qualifying child or relative here.

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What is a tax dependent?

A tax dependent is a child or relative whose characteristics and relationship to you qualify you for tax benefits such as head of household filing status, the Child Tax Credit, the Earned Income Tax Credit, or the Child and Dependent Care Credit.

It can be difficult to tell if someone is a tax dependent. Here's a quick rundown, but keep in mind that this is a complicated area of the tax code with plenty of exceptions.

For tax purposes, there are two kinds of dependents:

1. Qualified child
2. An eligible relative

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Why claim someone as a dependent?

For income tax purposes, you need to know how the IRS defines "dependents". Here's why. Understanding this can save you thousands on your taxes. Prior to 2018, the exemption amount, equal to $4,050 in 2017, is deducted from your taxable income for every dependent you claim. Savings on your tax bill are substantial.

Being eligible for these benefits can mean the difference between owing money and receiving a refund.

The basic rules are simple. However, applying those rules to certain family scenarios may be challenging. This is especially true if you have a son away at college, a cousin staying with you during the summer, or a daughter working part-time. Below is a checklist that will assist you in determining what relatives you can claim as dependents.

Tax breaks for claiming a tax dependent

There are some big tax breaks associated with claiming a dependent. An accountant or tax software can ask you questions that will help determine whether you qualify.

• Head of household filing status. With this filing status, you get bigger tax deductions and more favorable tax brackets than if you filed as single. 
• Child tax credit and credit for other dependents. In 2021, you could get up to $3,600 for each child. 
• Child and dependent care tax credit. Up to 50% of up to $8,000 of day care and similar expenses for a child under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work - and up to $16,000 for two or more dependents.
• Earned income credit. Depending on your income, how many kids you have and your marital status, you could receive $1,502 to $6,728 from this credit in 2021. If your adjusted gross income is less than $57,000, you might want to consider it. 
• Adoption credit. A child can receive up to $14,400 in adoption costs in 2021.

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Qualifying Child

A child must meet all of the following criteria to be claimed as a dependent on your tax return.

1. The youngster must be a member of your family ( Your son, daughter, stepchild, foster child, brother, sister, half brother, half-sister, stepbrother, stepsister, or a descendant of any of those people must be the child)
2. He or she must be under a specified age limit.
3. At the conclusion of the year, the child was 18 or younger, and younger than you or your spouse (if you're married and filing jointly).
4. At the conclusion of the year, the child was 23 or younger, a student, and younger than you or your spouse (if you're married and filing jointly). In this situation, "student" indicates the child was enrolled full-time for at least five months of the year.
5. The child is older than these age ranges, but a doctor has determined that he or she is permanently and fully incapacitated.
6. The youngster is required to reside with you (This is where the residency test comes in. The youngster must have spent more than half of the tax year with you) -- Temporary absences (such as if the child was away at college, in the hospital, or juvenile detention), children born or died during the tax year, children of divorced or separated parents, and kidnapped children are all exempt.
7. The youngster cannot sustain himself or herself financially for more than half of the time.
8. The youngster is unable to submit a joint tax return with another person.

The custodial parent usually gets to claim the child as a dependent in the event of a divorce or separation. However, if the custodial parent provides a formal declaration that he or she will not claim the child as a dependent, the noncustodial parent may be able to claim the child as a dependent.

You can't claim your child as a tax dependent if she gets a job and supports herself at least half of the time. However, household expenses such as rent, groceries, electricity, clothing, unreimbursed medical expenses, travel costs, and recreation expenses are often covered by assistance.

The joint return test is what it's called. If the kid and the child's spouse file a combined return solely to claim a refund of income tax withheld or anticipated tax paid, there is an exception.

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Eligible Relatives

A relative who qualifies can be of any age. However, in order to claim a relative as a tax dependent on your tax return, they must meet all of the following criteria.

1. The individual cannot be an eligible child of someone else (You can't claim the qualifying child of someone else as a qualifying relative. So, if your child lives with your parents and fits all of the criteria to be their qualifying child, you can't claim him as a qualified relative as well).
2. The person must be a relative or reside with you.
3. One of these relationships exists between you and the individual. He or she is your child, stepchild, legally adopted child, foster child, or a descendant of any of those people (for example, your grandchild), or is your sibling, half-sibling, stepsibling, niece, or nephew (including half siblings' children), or is your parent or grandparent, stepparent, aunt or uncle, or in-law (but not your foster parent).
4. The person spent the entire year with you. There are exceptions for temporary absences (such as when a child is away at college), children born or dying within the tax year, and children under the age of 18.

How many dependents can you claim?

It is permissible to claim as many eligible dependents as you have.

There are no exemptions for taxpayers or their dependents, just tax benefits for those with qualifying dependents.

Who is not a tax dependent?

Most of these people won't be considered your tax dependents:

• If you are someone else's dependent, you are usually not allowed to claim yourself as a dependent.
• A married couple filing a joint tax return (there are a few important but complicated exceptions to this; see IRS Publication 501 for more information).
• Anyone who is not a U.S. citizen, a U.S. resident alien, a U.S. national or a resident of Canada or Mexico (adoption is an exception).
• Employees.
• Students on foreign exchanges.

How to Claim Dependents on Your Tax Return

Having a tax professional prepare your tax return allows you to claim dependents. A tax professional will select the correct forms and schedules for you to report your dependents based on your answers to several tax questions. 

Make sure that you have your dependents' Social Security cards because you will need to enter their names and Social Security numbers exactly as they appear on the cards. If your dependent does not have a Social Security Number, they can use an Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN).