Tax season is here and so thoughts turn to…dependents. (Presumably, you are always thinking about your beloved dependents!) While you certainly know whom you consider to be dependent upon you, the definition of “dependent” is more nuanced for income tax purposes.
Understanding exactly who is (and who is not) a dependent has enormous implications for the amount of taxes you will pay, and perhaps in ways that you may not fully expect.
To understand how the IRS views dependents, you need to wrap your head around the concept of Qualifying Child vs. Qualifying Relative. These are both categories of dependents.
The most straightforward example of a Qualifying Child dependent is well known: Your unmarried son or daughter, aged 19 years or younger, lives with you and does not pay for their own support. Or, your child is less than 24 years old, but is a full-time student.
- If you share custody of your child, the basic concept holds. With whom did the child live most of the year? In some cases, two parents may agree between themselves that the non-custodial parent will claim their child as a dependent.
- Importantly, disabled adult children can always be claimed as a Qualifying Child regardless of age if they are unable to support themselves.
- Who else can be a Qualifying Child? A sibling, grandchild or niece or nephew may also meet the definition of a Qualifying Child.
If you have a Qualifying Child, you are able to take the Child Tax Credit. For low and moderate income households, having a Qualifying Child greatly increases the value of the Earned Income Tax Credit. In addition, with a Qualifying Child you can claim the Dependent Care Credit (if applicable) which helps offset the cost of child care.
But there are also people who can be your dependents, but are not children at all, such as an adult sibling, a parent, a grandparent or niece or nephew. These are just a few examples of Qualifying Relatives who may be dependents if you financially support them, even though they may not live with you. This may be especially relevant for persons whose aging parents have little or no income apart from their Social Security benefit. And so while you cannot benefit from the Child Tax Credit for these persons, you can still claim them as a dependent and this may lower your tax liability. You can also claim the Dependent Care Credit if applicable.
You may also be able to claim a person who lives with you as a Qualifying Relative, even if they are not related to you in the ways described above, if that person has little or no income.
The rules around who is and who is not a dependent can be quite confusing and this is only a quick snapshot. There is an interactive questionnaire on the IRS site that you can use to determine if someone can be your dependent.
A further complexity is that your filing status (and particularly, whether or not you are considered to be a Head of Household) will depend on the specific nature of your dependents. In short, having a dependent does not automatically grant a single person Head of Household status. But again, the IRS site has a helpful Filing Status interactive questionnaire that you can use to get to the bottom of this.
Completing your annual tax return can be confusing and the discussion above only scratches the surface. Common software packages will guide you through questions that will help you determine your correct filing status and number of dependents. Depending on your income, you can even access the most popular tax preparation software completely free of charge. (See the IRS site for more information.) If your household income is not more than $57,000, you may be able to get free help to prepare your return from the Volunteer Income Tax Assistance (VITA) program; you can find a VITA site in your area here.
Just like you, every tax situation is unique. In addition to the resources above, there is a wealth of information available to help you complete your taxes. (The IRS site itself has quite a lot of easy to digest information.) But if you still have questions or concerns, or simply do not feel confident in going it alone, do not hesitate to seek out the assistance of a professional tax preparer.