One of the first tax deductions you get on a 1040 tax return is for dependents. Each individual is eligible to receive a “personal exemption”, which reduces their taxable income by $3,650. However, for someone such as a child who doesn’t support themselves, their personal exemption can be transferred to the person who actually supports them (such as the parent). For each dependent listed on your taxes, you’ll reduce your taxable income. But this tax deduction isn’t limited to children – if you support other people in your household, or have people who are otherwise dependent upon you, adding them as dependents gives you a valuable tax break. In order to make sure they qualify, you must check that they meet specific rules.
1. If you are someone else’s dependent, you can’t claim dependents of your own. This seems a little circular, but if you don’t support yourself, you can’t claim to be supporting someone else. For example, if Mary and her son Jeff move back in with Mary’s mother Susan due to a job loss, and Mary doesn’t have an income or any other means of supporting herself, Susan might qualify to take Mary as a dependent. However, Mary cannot then list Jeff as her dependent – Jeff might actually be Susan’s dependent if Susan provides his support.
2. You must be a citizen of the United States or a resident of the United States, Canada, or Mexico in order to qualify for getting a personal exemption. Even if they are a relative that you support, you cannot claim a resident of Sweden as a dependent.
3. If the dependent is married, they can’t file with their spouse as married filing jointly. So in the example above, if Mary was married when she moved in with Susan, Mary and her husband must file separately in order for Susan to claim her as a dependent. Otherwise, if Mary and her husband file as married filing jointly, it would end up essentially that Mary’s husband took Mary as a dependent.
The most common type of dependent is a child being claimed by their parent. In this situation, there are four specific criteria that you must meet in order to take a child as a dependent.
1. Residency – The dependent must have lived with you for at least six months out of the year, although the time doesn’t have to be continuous.
2. Relationship – In order to qualify as a child, the person in question must be your son, daughter, brother, sister, adopted child, eligible foster child, or a descendant of any of those (such as grandchildren, nieces, and nephews.) Step-children and half-siblings also meet this qualification. Adding additional categories to the list of allowed relatives is intended to allow for situations where older siblings care for younger siblings or a similar setup.
3. Age – The dependent must not have reached the age of 19 by the end of the year unless they are younger than 24 and are a full-time student. However, if a relative (from the list above) is permanently and totally disabled, they can be claimed as a dependent, even if they are over age 19.
4. Support – You must provide the majority of their support, and the child cannot provide more than half of the money for their own support. For example, a young actor might earn more than her parents, and thus would be providing support for herself. Another instance would be if a child had a trust fund or other source of money that paid for their needs. In these examples, the child is not eligible to be taken as a dependent.
Can you take someone other than a child as a dependent? Here the requirements are stricter. Generally, if the person did not earn more than $3,650 all year, and you provided more than 50% of their support, you will be able to take that person as a dependent. For non-child dependents, they don’t have to have lived with you if you are providing their support, such as if you are paying for your grandmother to live on her own in a separate apartment. However, and this is important, you are able to claim a person as a dependent who is UNRELATED to you if they lived with you for the ENTIRE year, did not earn more than $3,650, and you paid for more than half of their support.
What does it mean when we talk about “support”? Generally, the IRS defines support as items provided on behalf of an individual. This includes food, lodging, and other living expenses, but isn’t limited to necessities. This can include clothing, transportation, daycare or babysitting, medical costs, education bills, and items bought just for personal enjoyment (such as a video game or haircut.) If you provide housing, you can only count the fair rental value of what you provide them (you can’t just use the mortgage or rent you actually paid.) For example, you wouldn’t be able to include the cost of your whole home’s mortgage, just what you would charge a renter who has access to the same rooms they do.
If more than one person or married couple provides support for a particular person, they must determine which can take that person as a dependent, because each person can only be taken as a dependent once. A very common situation where this is a problem is for divorced couples who share custody of a child. Generally, if the child lived with one parent more than the other during the year, that parent is able to take the child as their dependent. They do have the right to waive the option to take the child as a dependent, and then the other parent may take the dependency exemption. If one parent’s income is lower, it could benefit the higher-earning parent more. Sometimes arrangements overtaking the child as a dependent are included in the divorce decree. If the custodial parent (who has the child more than 50% of the time) wishes to sign over the exemption to the other parent, you can complete Form 8332, or you can include a copy of the section of the divorce agreement dealing with this issue. These rules still apply to stepchildren, even after a divorce.
Providing food, clothing, and shelter for another person can get expensive, but if you’re qualified to take that person as a dependent, you’ll gain a valuable tax deduction and get a bigger refund!