Can You Claim a Tax Deduction for Sending Money to a Child in Prison?
You can't take a deduction for money you send to your son or daughter in prison—or anyone else, for that matter. Money, food, clothing, toys, and other items sent to anyone for any reason and without compensation is considered a gift under the tax code. And gifts aren't tax-deductible, so the short answer to this question is no.
An exception exists when you give money or other items to a qualified charity. Charitable donations can be included as an itemized deduction on Form 1040 Schedule A.
There's an outside chance you could get a tax break or two for your child, but deducting the value of money or anything else you send them isn't one of them.
If Your Child Is Your Dependent
You might be eligible to claim your child as a dependent under the qualified children rules if they lived with you for more than half the year before going to prison, and if they didn't provide more than half their own financial support during the year. They must additionally be younger than age 19 on the last day of the year, provided that they're not a student.
You might normally be able to claim a child as a qualifying relative if they're 19 or older, but this loophole closes if your child is in prison. Qualifying relative rules require that they must either live with you all year, or you must pay at least half of their support needs if they live elsewhere. This would not be the case if they were incarcerated.
Angela, a single parent, has two children, Barbara and Charles. Both children live with her. Charles gets in trouble with the law and goes to jail in July. Charles remains in prison for the rest of the year. Angela might be entitled to claim both her children as dependents on her return based on this scenario.
One of the crucial tests for claiming a child dependent is that they can't provide more than half of their own financial support during the year. Angela can prove that both children lived with her for more than half the year because Charles wasn't incarcerated until July.
Angela can also prove that neither child provided more than half of their own support. Her son in prison is clearly not earning an income and contributing to his own support.
A Tax Court Decision
While the specific situation of an incarcerated dependent is not mentioned in tax law, the scenario in this example is based on a Tax Court case from 2002. The issue was whether the parent could claim her son as a dependent and as a qualifying child for the Earned Income Tax Credit even though he was in prison all year.
The Tax Court reasoned that since the parent did not provide more than half the child's support, the parent could not claim the son as a dependent. Furthermore, since the son did not live with his mother for more than six months of the year, she couldn't claim him for Earned Income Tax Credit purposes, either.
An Important Change Since 2002
The definition of a dependent has changed since the Tax Court issued this decision in 2002. Under 2020 rules, it can be easier for an incarcerated child to be claimed as a dependent because the law provides that dependents cannot provide more than half their own support, rather than that parents must directly pay more than half, which was the rule in 2002.
Other Child-Related Tax Benefits
Other child-related tax benefits such as the head of household filing status, the Earned Income Credit, and the Child Tax Credit all have different eligibility criteria. For example, the head of household status requires that a taxpayer must pay for more than half of maintaining the child's main home during the year, and this would not be the case if the child was incarcerated. Additionally, married parents can't qualify for the head of household status.
Could You Owe an Additional Tax?
Although gifts aren't tax-deductible, they can be taxable under some circumstances—and the gift tax is payable by the donor, not the recipient of the gift.
You can give away up to $15,000 per person per year as of 2020 without having to pay a gift tax. This means that you could owe the tax on $100 if you gave your child $15,100 at a top rate of 40%, the rate in place for gifts made since 2014. This would involve filing IRS Form 709 with your return, but you can dodge the bullet by applying the gift to your lifetime gift tax exemption instead. That's $11.58 million as of 2020.
You can give away up to this amount without paying a gift tax, but the exemption is shared with the estate tax. The more you use up by giving gifts during your lifetime, the less will be available to shield your estate from taxation when you die.
IRS. "Tax Tips to Help You Determine What Makes a Gift Taxable." Accessed April 29, 2020.
IRS. "Publication 501 (2019), Dependents, Standard Deduction, and Filing Information." Accessed April 29, 2020.
IRS. "Publication 501 Exemptions, Standard Deductions, and Filing Information for Use in Preparing 2002 Returns." Page 13. Accessed April 30, 2020.
IRS. "Filing Status 3." Accessed April 29, 2020.
IRS. "What's New—Estate and Gift Tax." Accessed April 29, 2020.