One of the biggest changes under the Tax Cuts and Jobs Act (TCJA) was the suspension of personal exemptions through 2025, when the legislation potentially expires. It used to be that you could claim one for yourself, one for your spouse, and one each of your dependents each year, seriously whittling down your taxable income.
So is it even worth claiming dependents at all anymore? It can be, because several other tax benefits still depend on having them and they represent some significant tax savings, too.
- The Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions through at least 2025.
- Other ways to receive tax credit in lieu of personal exemptions include head-of-household credit, the child tax credit, child and dependent care credit, and earned income tax credit (EITC).
- As of tax year 2021, you can also claim a tax credit for dependents who are older than age 16.
- Congress also extended the 7.5% medical expense deduction rate through at least 2021 via the Tax Extender and Disaster Relief Act.
What Are Personal Exemptions?
Personal exemptions generally allow taxpayers to claim themselves (and possibly their spouse) on their tax returns.
Before the TCJA took effect, the personal exemption was $4,050. You could cut $4,050 off your taxable income for yourself, as well as $4,050 for your spouse, and for each of your dependents. A married couple with three children could subtract $20,250—$4,050 times five—from their taxable income before claiming the standard deduction for their filing status or itemizing.
However, while the $4,050 per person is lost at least through the end of the 2025 tax year, claiming dependents can still save you tax dollars. The TCJA also more or less doubled standard deductions over what they were prior, so your tax situation might remain at least somewhat the same if you’re eligible to claim these other tax breaks.
Head-of-Household Filing Status
Qualifying as head of household entitles you to a larger standard deduction than you would receive if you filed a single return: $18,800 versus the $12,550 that single filers can claim as of tax year 2021 (the return you file in 2022).
Claiming this filing status requires that you have at least one dependent. Claiming one can shave $6,250, the difference between the single and head-of-household standard deductions, off your 2021 taxable income. You also get to earn more income before climbing into a higher tax bracket.
In addition to being able to claim a dependent, you must be "considered unmarried" to file as head of household—you’re either single or you didn’t live with your spouse at any time during the last six months of the year. You must also have paid more than half the expenses of maintaining your home during the tax year.
The Child Tax Credit and Credit for Other Dependents
Tax credits are better than tax deductions, and the child tax credit is one of the best available. Deductions can only subtract from your taxable income, but credits are deducted from what you actually owe the IRS. Some credits are even refundable, so the IRS will send you a check when and if the credit you qualify for exceeds your tax liability. But you’ll need at least one child dependent to qualify for this one.
The Child Tax Credit
While the TCJA initially increased the child tax credit when it was enacted, the American Rescue Plan Act made some significant improvements to the credit.
Signed into law by President Joe Biden on March 11, 2021, the American Rescue Plan increased the child tax credit to $3,600 for children under the age of six and $3,000 for children ages six through 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (head of household). However, these provisions will remain in place for only one year.
The American Rescue Plan also adjusted the child tax credit rule to make it fully refundable for tax year 2021.
The Credit for Other Dependents
As of tax year 2021, you can also claim a tax credit for dependents who are older than age 16. This one is only worth $500, but that's at least some noteworthy amount. Most of the qualifying rules are the same as for the child tax credit, except adult dependents don't have to have valid Social Security numbers. Your dependent will need an adoption taxpayer identification number (ATIN), however, or an individual taxpayer identification number (ITIN).
Unfortunately, though, the $500 credit for other dependents isn’t refundable, so the most it can do is shave that amount off your tax bill for each qualifying dependent.
The Child and Dependent Care Credit
The child and dependent care credit is a tax credit that may help you pay for the care of eligible children and other qualifying dependents. This credit equals up to 50% of what you spend on child care so you can go to work or leave home to look for a job. The exact percentage depends on your income and how many child dependents you have who need care. It’s a portion of up to $4,000 in care costs if you have one child, or $8,000 if you have two or more children.
Your dependents must be under age 13—young enough to require supervisory care while you’re away from home—or disabled and incapable of self-care. If you’re married, your spouse must also be unavailable to care for your kids because he’s working or looking for work, is disabled, or is a full-time student.
If you pay an individual rather than a day camp or child care center, that person cannot be your spouse, the child’s parent, or another one of your dependents. You—and your spouse if you’re married and file a joint return—must have earned income to qualify.
Taxpayers with an adjusted gross income (AGI) over $438,000 are not eligible for this credit even though they may have been able to do so before.
You generally also can’t claim this credit if you’re married but file a separate return, but some exceptions apply if you don’t live with your spouse. You can only include costs not paid for or reimbursed by your employer. It’s not a refundable credit.
The Earned Income Tax Credit
You can claim the earned income tax credit (EITC) even if you don’t have a dependent child, but it’s worth a lot more money if you do have one or more. This credit aims to put dollars back into the pockets of lower-income families and is also refundable.
You must have earned income to qualify but not too much. Unearned income from investments is capped at $10,000 for the 2021 tax year, the return you’ll file in 2022. Having adult dependents won’t qualify you for more of a credit. Your qualifying dependents must be children who are no older than age 19 at the end of the tax year, or age 24 if they’re still in school.
You’ll still qualify for the EITC if you don’t have a qualifying child, your income doesn’t exceed $21,430 in a tax year, and you’re not filing a joint married return. Here is the maximum of credit you can claim in 2021:
- No qualifying children: $1,502
- 1 qualifying child: $3,618
- 2 qualifying children: $5,980
- 3 or more qualifying children: $6,728
While these limits are indexed yearly for inflation, it can definitely be worthwhile to claim your child dependents, if you meet the income parameters for this tax credit, even if there are no more personal exemptions.
Education Tax Credits
Two popular education tax credits survived the TCJA ax as well: the Lifetime Learning Credit and the American Opportunity Credit (AOC). You can claim either one of them—but not both—if you qualify for yourself, for your spouse, and one for each of your dependents.
You can claim one credit for one student and the other for another if more than one of you is pursuing postsecondary education. You just can’t use the same student's expenses to claim both.
The student must be in the first four years of college to qualify for the AOC, but the lifetime learning credit (LLC) doesn’t share this restriction. The maximum AOC is $2,500 per student and up to 40% of that is refundable (up to $1,000), while the maximum LLC is capped at $2,000 per student. It’s equal to 20% of the first $10,000 you pay in tuition and fees annually.
Your dependents will also help qualify you for an education-related tax deduction. The student loan interest deduction is worth up to $2,500 in interest you paid on qualified student loans over the course of the year for yourself, your spouse, or your dependents.
You don’t have to itemize your deductions to claim this one. It’s an above-the-line adjustment to income.
The Medical Expense Deduction
Your dependents’ expenses can also contribute to the medical expense deduction if you decide to itemize on your tax return. You can claim a deduction for the portion of your overall expenses, including many health insurance premiums, that exceed 7.5% of your AGI as of the 2021 tax year.
The TCJA reduced this threshold from 10%, but only originally through 2018. Congress later extended the 7.5% rate through at least 2021 via the Tax Extender and Disaster Relief Act and the Further Consolidated Appropriations Act. It’s slated to increase again to 10% of AGI as of 2021.
Frequently Asked Questions (FAQs)
What replaced personal exemptions?
Even though the TCJA set the personal exemption amount at zero through at least 2025, the legislation raised the standard deduction and the child credit as substitutes. In tax year, 2021, The standard deduction married couples filing jointly increases to $25,100. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 and for heads of households, the standard deduction is $18,800.
Meanwhile, thanks to the American Rescue Plan, the child tax credit for 2021 is $3,600 for children under the age of six and $3,000 for children ages six through 17. This provision, however, only lasts for this tax year.
What dependent tax credits can I claim?
You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. Your dependents must be under age 13 or a spouse or individual who was physically or mentally incapable of self-care and lived with you for more than half of the year.