Different Rules for Claiming Dependents, Head of Household, and the EIC
Head of household status and the EIC depend on you having dependents
Personal exemptions were eliminated from the U.S. tax code by the Tax Cuts and Jobs Act (TCJA) in 2018, at least through 2025 when the TCJA expires. You can't claim these exemptions for your dependents in tax year 2020, but claiming dependents still offers some significant tax breaks, including the advantageous head of household filing status and the Earned Income Tax Credit (EIC).
Both of these tax breaks require that a taxpayer have one or more dependents. Several other tax credits are available or become more beneficial if you have dependents as well, including:
- The Child Tax Credit
- The Credit for Other Dependents
- The Child and Dependent Care Credit
- The Lifetime Learning Credit
- The American Opportunity Credit
You can claim your dependents' expenses toward the medical expense deduction as well if you choose to itemize.
Some of these tax benefits are closely related, and they're all designed to help minimize the tax burden for working families. But each has its own unique, separate requirements.
Dependents are often children because, by definition, a dependent is someone who relies upon you for financial support. But this doesn't mean that your dependents can only be your sons or daughters—far from it.
Other types of dependent relationships can exist as well, such as with stepchildren, parents, grandparents, nieces, nephews, siblings, and other family members. Even foster children who are placed with you by a court or authorized placement agency can qualify.
Dependents are either qualifying children or qualifying relatives.
Rules for Qualifying Children
A qualifying child must be younger than age 19 on the last day of the tax year, or younger than age 24 if they're a full-time student. They must be younger than you, and younger than both you and your spouse if you're married.
There are no age restrictions for children who are totally and permanently disabled.
Your qualifying child must have lived in your home in the U.S. for more than half the year. This doesn't include Puerto Rico or any of the U.S. possessions. Living away at school in a dorm room is considered a temporary absence from your home and it won't disqualify your dependent if your house continues to be their "home base."
A custodial parent who has the right to claim their child as a dependent can waive that right in some cases, effectively giving it to the other parent, by signing IRS Form 8832.
Your child dependent doesn't have to be your biological child. Stepchildren, adopted children, some foster children, siblings, step-siblings, half-siblings, or any descendants of these individuals can qualify as well.
Your child dependent can't file a joint married tax return with their spouse unless they do so solely for purposes of claiming a refund—your child or their spouse didn't have any tax liability that required them to file a return.
Rules for Qualifying Relatives
The rules for qualifying relatives are similar, but there are no age or disability limitations—with one exception. A dependent cannot be the qualifying child dependent of another taxpayer.
Some relatives, including your parents and siblings, are exempt from the rule that they must live in your residence, but those who do have to live with you must reside in your home for the entire year, not just for more than six months. You must provide more than half their total support for the year.
There are special rules for taxpayers who jointly provide for a qualifying relative, such as a parent. Taxpayers who jointly support a dependent can enter into a Multiple Support Declaration and file Form 2120 with the IRS, relinquishing the dependent to one of the others. You can do this yearly, changing the dependent from one to another so everyone gets to claim the benefit as time goes by.
Income Requirement for Qualifying Relatives
A qualifying relative's total income for the year must be less than the amount of that year's personal exemption, and this is where the situation gets tricky.
The TCJA might have eliminated personal exemptions from the tax code when it went into effect in January 2018, but the TCJA retains provisions for how much the exemption would have been for purposes of qualifying for other tax breaks. Exemptions are indexed for inflation, so they increase periodically.
The TCJA also tweaked these inflationary adjustments, however. They're calculated using the chained consumer price index (CPI) under the TCJA, rather than the traditional CPI as has been the case in the past, but this isn't really a big change.
The exemption amount and gross income cap for qualifying relatives is $4,200 for the 2019 tax year, the return you'd file in 2020. It can be expected to increase marginally for the 2020 tax year.
The IRS hasn't yet announced a gross income limit for qualifying relatives in 2020 as of October 2020, but it should not be significantly different.
Two Taxpayers Can't Claim the Same Dependent
Only one taxpayer can claim the same child or qualifying relative as a dependent, and the IRS is pretty strict about this. It will almost certainly invite an audit—or least an official letter of inquiry—if two or more taxpayers attempt to do so.
Parents always have the first right to claim a child. The IRS will award the dependent to the parent with whom the child lived most during the tax year if two parents otherwise qualify. The right defaults to the parent with the highest adjusted gross income (AGI) if the child spent equal time with each of them.
Dependent Rules for Head of Household Status
Filing as head of household widens the income tax brackets to which each tax rate applies, and this can be advantageous. For example, a head of household filer can earn up to $53,700 before moving into the 22% tax bracket as of 2020. This is up from $52,850 in 2019 because these brackets are also adjusted for inflation.
The 22% threshold is only $40,125 for single filers in 2020, up from $39,475 in 2019, a significant difference.
Having at least one dependent is a critical element of qualifying for head of household. An unmarried taxpayer without a dependent is a single filer.
A taxpayer must have at least one dependent and be unmarried or "considered" unmarried under IRS rules to be eligible for head of household status, so this tax benefit is particularly well-suited for single parents. You can still qualify if you're separated from your spouse but you're not legally divorced if you don't live with them after June 30 of the tax year.
Unlike the rules for simply claiming a dependent, qualifying as head of household requires that your dependent must be closely related to you by birth or marriage. Your dependent must reside with you for more than half the year, and you must provide more than half the total costs of keeping up your home.
The last two requirements aren't always the case for simply claiming someone as a dependent. For example, your parent doesn't have to actually reside with you for you to be able to claim them as a dependent, but they do have to live with you for at least half the year for you to qualify as head of household—unless you have another qualifying dependent who does live with you all year.
The rule regarding the costs of your home is unique to this filing status as well.
The Earned Income Tax Credit
The Earned Income Tax Credit (EIC) is a refundable tax credit for lower-income families. The IRS will actually send you a refund for any portion of the credit that's left over after applying it to eliminate what you might owe.
Children, grandchildren, brothers, sisters, nieces, and nephews can all qualify as dependents for EITC purposes, but parents, grandparents, and other types of relationships generally will not. Your dependent person must be younger than age 19, or age 24 if he's a full-time student for at least five months out of the year.
Comparing All the Rules
All these limitations and rules can cause frustration when a taxpayer is caring for and financially supporting another person who doesn't qualify as a dependent. You might find that you're eligible only for the single filing status and can't claim the EITC.
Tax preparation software usually includes questionnaires to help taxpayers determine whether they're eligible to claim a dependent, to file as head of household, or to claim the Earned Income Credit or other tax breaks. Many of these interview questions might seem repetitive, but that's because the criteria can be slightly different in each case.
The IRS also provides a web tool called the EITC Assistant to help taxpayers figure out if they qualify for the earned income credit.
- Just because you can claim someone as a dependent, this doesn't automatically make you eligible for other tax perks.
- The dependent rules can be marginally different depending on which tax break you want to claim, but they generally mirror each other.
- Your best bet would be to invest in quality tax preparation software, or consult with a tax professional if you're unsure where you stand.
NOTE: Tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.
IRS. "Qualifying Child Rules." Accessed Oct. 9, 2020.
IRS. "Publication 501 (2019), Dependents, Standard Deduction, and Filing Information." Accessed Oct. 9, 2020.
IRS. "Dependents." Pages 8-9. Accessed Oct. 9, 2020.
IRS. "Qualifying Child of More Than One Person." Accessed Oct. 9, 2020.
Tax Foundation. "2020 Tax Brackets." Accessed Oct. 9, 2020.
Tax Foundation. "2019 Tax Brackets." Accessed Oct. 9, 2020.