Claiming Dependents on Your Federal Tax Return
The TCJA changes things a bit, but a lot of dependent tax breaks remain
Claiming dependents can save you a good bit of money at tax time. Some of the rules for dependents are marginally different for purposes of claiming various credits and deductions, but they mirror those for being able to claim dependents in general.
Tax Credits for Dependents
A slew of tax credits are based on the number of dependents you have, including:
- The Child Tax Credit
- The Additional Child Credit
- The Child and Dependent Care Tax Credit
- The Earned Income Tax Credit
- The Credit for Other Dependents
The Child Tax Credit is worth up to $2,000 per child dependent under the age of 17. Individual taxpayers earning up to $200,000 and married taxpayers filing jointly who earn up to $400,000 are eligible for the full credit. The Additional Child Credit applies when the $2,000 credit is more than what the taxpayer owes in taxes, and it's refundable.
The Child and Dependent Care credit works out to up to 35% of the first $3,000 you spend for care for one dependent, or $6,000 for two or more dependents, while you work or look for work. Some complicated rules apply to the exact amount.
The Earned Income Tax Credit is worth up to $6,660 in 2020 if you have three or more qualifying child dependents, but income limits apply. Then there's the $500 Credit for Other Dependents that was introduced in 2018 and covers children and adults who don't meet the qualifying child rules for the Child Tax Credit.
Tax Deductions for Dependents
Having dependents can also add to the value of the itemized medical expense deduction, as well as the tuition and fees deduction. It can qualify you for the head of household filing status if you're not married and you support a dependent, which is much more advantageous than filing as a single taxpayer.
Qualifying Rules for Taxpayers
You can't claim anyone as your dependent if you're someone else's dependent. Likewise, no one else can claim you as a dependent if you claim a dependent.
As an example, maybe you're 23 years old, have a child, and you live at home with your parents. You're also a full-time student so you qualify as your parents' dependent. You can't claim your child as your dependent if your parents claim you, and your parents can't claim you if you do claim your child.
Qualifying Rules for Dependents
The rules that apply to dependents are a bit trickier. You can't claim a dependent who is married and files a joint return with their spouse, with one exception: A married person can file a joint return and still be claimed as a dependent by another taxpayer if the joint return was filed only so the couple could claim a refund. Neither spouse would have had any tax liability if they had filed separate returns.
Your dependent must be a U.S. citizen, a national, a resident alien of the U.S., or a resident of Canada or Mexico.
A dependent can be claimed by one and only one taxpayer in any given year. This means that if you and your spouse are no longer married and can't file a joint return, you can't both claim your child as a dependent on your separate returns. Your child must be claimed by one of you or the other.
Qualifying Child Dependents
All dependents fall into one of two categories: They must be either a qualifying child or a qualifying relative. Different rules apply to each.
A qualifying child must be related to you, but this doesn't necessarily mean that you have to be their biological parent. You can be their brother, aunt, foster parent, stepparent, or even a half-sibling. There must simply be a legal or familial relationship.
A child can only qualify as your dependent until their 19th birthday unless they're a full-time student. If so, you can continue to claim them as a dependent until they reach age 24. There's no age limit for children who are disabled.
The child must live with you for more than half the year. Time spent away at college doesn't count as living away because they're expected to return to your home as their primary residence at some point. More than half a year means six months and one day at a minimum, so you might want to keep a log of where the child spends each night if you share custody.
The child can't contribute more than half to their own support for the year if they work. This is different from the tax laws that applied prior to 2005 when the taxpayer had to provide more than half the support for the child.
Expenses That Qualify As Support
According to IRS Publication 501, total support includes what you spend to provide:
"...food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities."
Your child can contribute up to $12,000 if they work or otherwise have income of their own, and if the total cost of their qualifying support needs was $24,000 for the year. They can't contribute $12,001.
You can also claim a qualifying relative as a dependent if they're too old to qualify as your dependent child. Some relatives must live with you in your home for the full year, but exceptions exist for close relatives like your parent, grandparent, sibling, niece, or nephew.
Your relative's income can't exceed the amount of the personal exemption for the tax year. Personal exemptions were eliminated by the Tax Cuts and Jobs Act (TCJA) in 2018, but the tax code still includes a provision for what the exemption would have been worth for purposes of defining dependents for other tax breaks. The income limit is $4,200 for the 2019 tax year, the return you'll file in 2020.
You must provide more than half that person's support needs according to the same rules for what constitutes support for a child dependent.
You can file Form 2120, the Multiple Support Declaration, with the IRS if multiple people support a single person, such as because you and your siblings are collectively supporting your parent. This will allow just one of you to claim the supported person as a dependent—but you all have to agree in writing as to which one of you that's going to be, and that person must have paid for more than 10% of the dependent's needs for the year.
Your relationship can't violate local law if your dependent must live with you all year because they're not closely related to you. For example, you can't claim a married individual as your dependent if your state prohibits co-habitation with a married person, even if you meet all the other criteria.
Domestic partners can be claimed as dependents under the qualifying relative tests, although it is unlikely that domestic partners will meet IRS gross income requirements.
The IRS will inevitably audit tax returns when two or more taxpayers attempt to claim the same dependent. Its computer will throw up a red flag that the dependent's Social Security number has been entered on two or more tax returns. Only one taxpayer can win in this situation. The losing taxpayer will probably have to pay additional taxes, plus penalties and interest.
Who Gets to Claim the Dependent?
The IRS uses tie-breaker tests to determine which taxpayer is eligible to claim a dependent. These tests are listed in order of priority. The taxpayer most eligible to claim a child as a dependent under the qualifying child criteria is:
- A parent as opposed to another relative
- The parent with whom the child lived the longest during the year. Chances are, the child will spend at least one day more with one parent than the other because there are usually 365 days in a year
- The parent with the highest adjusted gross income if the child spent exactly an equal amount of time with each parent or if it can't be determined who they actually spent more time with
- The taxpayer with the highest adjusted gross income gets to claim the child If neither taxpayer is the child's parent
Waiving Your Right to Claim a Dependent
A non-qualifying parent can still claim the child as their dependent if the qualifying parent releases their claim to a dependent by filing Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, with the IRS. You can indicate the year or years for which you're agreeing to release your claim. You can also revoke the release if you later change your mind.
This rule doesn't apply to all tax credits and deductions. In some cases, the right to claim the child can't be transferred, such as to claim head of household filing status. The child must actually live with you in order for you to qualify for this status.
2020 Status of Personal Exemptions
The Internal Revenue Code used to allow taxpayers to deduct personal exemptions for themselves, as well as for each of their dependents. These deductions could be taken from your gross income to arrive at your taxable income through tax year 2017. Unfortunately, the provision was eliminated by the TCJA beginning in 2018.
You can still claim personal exemptions if you file an amended return for tax year 2017 or earlier.
The TCJA is set to expire at the end of 2025. One of three things can happen at that time. Congress might let the law die a natural death, and personal exemptions would return. Or Congress might renew the TCJA in its present form, so we'd be without personal exemptions for another stretch of years. Finally, Congress could resurrect the TCJA but with changes that might or might not affect the status of these exemptions.
The Bottom Line
Protect yourself by making absolutely sure you're eligible to claim each dependent on your tax return before you do so. Make sure you have documents that will support your claim, and check the rules for each tax credit you're claiming to pin down any variances in qualifying rules, or check with a tax professional before you file your return.
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