What Is a Dependent?
Understanding who does and doesn’t qualify as a dependent on your taxes is important. Simply put, a dependent is relative for whom you’ve provided substantial financial support during the tax year. There are several other criteria that must be met in order for you to claim them on your tax return, but doing so can save you thousands of dollars per year.
Depending on who you care for, your tax liability can change drastically, which is especially pertinent for larger families or those who care for aging relatives. Let’s break down who exactly qualifies as a dependent, how to claim them on your tax returns, and the challenges involved with it all.
What Is a Dependent?
A dependent is a person who relies on you for financial support, either because they’re a child, or because they’re an older relative who is unable to maintain substantial employment. There are two official types of dependents: qualifying children and qualifying relatives.
Types of Dependents
In order to claim a dependent, the Internal Revenue Service (IRS) has a series of criteria that need to be met.
For a qualifying child:
- The individual must be one of the following: your son or daughter, stepchild, foster child, brother or sister, half brother or sister, stepbrother or sister, or a descendant of any of them.
- Your child must be younger than you, and either younger than 19 years old or a full-time student under the age of 24 by the end of the calendar year.
- Your child must live with you for at least half of the year, with a few exceptions, including military deployment or children of parents who live apart.
- You must have provided financial support to the individual for more than half of the year.
- You must be the only person claiming them.
If your child is permanently and totally disabled, there is no age limit.
For a qualifying relative:
- Your relative must have lived with you all year, unless they’re listed as an exception, according to the IRS.
- For the 2020 tax year, set to be filed in 2021, the income limit is $4,300.
- You must provide more than half of the individual’s total financial support for the year.
- You must be the only person claiming them.
In addition to the criteria above, there are three additional tests for those claiming a dependent:
- Dependency taxpayer test: If you can be claimed as someone else’s dependent, you yourself are not allowed to claim dependents.
- Joint return test: You cannot claim a married person as a dependent if they file a joint tax return. An exception applies if that return is only to reclaim paid income or estimated tax.
- Citizen or resident test: The person you’re claiming must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of either Mexico or Canada (with an exception for some adopted children).
How Dependents Work
The purpose of claiming a dependent is to provide financial relief for taxpayers. This originated in 1954 with section 151 of the IRS tax code and the introduction of personal exemptions. Claiming a dependent increases the amount of exemptions to which you are entitled, thus reducing the amount of income on which you’ll be taxed.
With the signing of the Tax Cuts and Jobs Act (TCJA) in 2017, personal exemptions were eliminated, effective from 2018 through 2025. In their place, standard deductions were nearly doubled, certain tax credits were increased, and new credits were created. These credits include the child tax credit and credit for other dependents, as well as the child and dependent care credit, among others.
Eligibility requirements vary for all credits, but together they can significantly lower your tax burden—or even provide a refund if you owe no tax. The IRS has a digital tool that can help you determine whether your child qualifies for the child tax credit or the credit for other dependents.
Do You Have to Claim Dependents on Your Taxes?
While it’s not mandatory to claim dependents on your tax return, it’s generally a good idea, as claiming them can entitle you to thousands of dollars in tax credits. By choosing not to add them to your return, you’re leaving money on the table each year.
At higher income levels, several credits will phase out and you may not see much benefit on your taxes. The child tax credit, for example, is phased out and begins to fade away as income increases above $400,000 on joint returns, or above $200,000 on single and head of household returns.
Pros and Cons of Claiming Dependents on Your Taxes
- Adding a dependent can lower your overall tax burden
- Some credits are refundable
- Claiming someone as a dependent prevents them from filing their own tax return
- If your income is too high, you likely won’t see much benefit
- Adding a dependent can lower your overall tax burden. Since the government offers a number of different tax credits for dependents, you may be able to lessen the amount of tax you owe each year.
- Some credits are refundable. When a tax credit is refundable, this means that the IRS will pay you the credit even if you’ve zeroed out your tax bill.
The child and dependent care credit is a nonrefundable credit, so only taxpayers with a taxable income can claim it.
- Claiming someone as a dependent prevents them from filing their own tax return. In some cases, it may be more beneficial for someone to file their own return. For example, if you have an 18-year-old daughter with a full-time job, she may receive more money by filing a return instead of being claimed on yours.
- If your income is too high, you might not see much benefit. As a lot of credits are income-based and phase out at higher levels, there may not be a lot of benefit to adding a dependent to your taxes.
Tax Reform Impact on Allowances
Prior to the reform of the tax code in 2017, employees were able to adjust their withholding allowance on their Form W-4. The purpose of this was to alter how much income tax an employer withholds from your check. You could claim children and other dependents in order to lessen the amount of tax withheld, thereby increasing your take-home pay and reducing the refund, if any, you’d receive at the end of the year.
The current tax code has eliminated these allowances in favor of a higher standard deduction and child tax credit, as mentioned above. However, the current iteration of the W-4 still allows you to calculate, and thus, claim children and dependents. Now, instead of an exemption, you’ll receive a credit.
When filling out your W-4, you’ll simply fill out “Step 3: Claim Dependents.” If you’re eligible for the child tax credit or other dependent credits, less income tax will be withheld from your paycheck. This is in lieu of receiving the credit as a refund when you file your taxes.
- A dependent is a relative for whom you provide substantial financial support.
- Dependents must pass a series of tests in order to be claimed on your tax return.
- Adding a dependent to your tax return can qualify you for significant tax credits.