A frequent question is who can be claimed as a dependent by a taxpayer.
The IRS categorizes dependents as either a qualifying child or a qualifying relative. The requirements to be a qualifying child are that the person be a son, daughter, stepchild, foster child, sibling, half sibling, step sibling or a descendant of any of the above. As of Dec. 31 the qualifying child must be under the age of 19 or, if a full time student for at least five months of the year, under the age of 24. If the child is disabled, they can be any age. With the exception of a disabled child, all qualifying children must be younger than the taxpayer or one of the taxpayers if filing jointly. The qualifying child must live with the taxpayer for more than half the year. A child attending college in another city is considered to be living with the parent. The qualifying child may not file a joint return with another person.
To be a qualifying relative the person must not be a qualifying child of any other taxpayer, the person must live with you the entire year. The taxpayer must provide more than 50 percent of the relative’s support and the relative must have income less than $4,050. A parent supported by a taxpayer does not have to live with the taxpayer. All dependents must be a United States Citizen, a U.S. National or a resident alien and have a federal identification number. Usually this number will be a social security number but an individual tax identification number (ITIN) or an adoption taxpayer identification number (ATIN) also valid.
There are advantages for claiming a dependent.
Each dependent adds a personal exemption which lowers your taxable income. For 2017 tax returns each exemption deducts $4,050 from your income. If your filing status is married filing jointly you would claim an exemption for yourself and one for your spouse. You would then add an exemption for each dependent. A married couple with two children would claim four exemptions for a total of $16,200.
A dependent may affects your filing status, which affects your standard deduction. A dependent allows a single parent to file as head of household and a widow would file as a qualifying widow. Qualifying widow status is valid for two years after which you would file as head of household. The standard deduction for single filing status is $6,350, for head of household is $9,350, and for married filing jointly or qualifying widow is $12,700.
If you itemize deductions rather than take the standard deduction, your dependent’s medical expenses would be included as your own. These costs may be included as long as you are not reimbursed by insurance or paid for with funds from a tax advantaged account such as a Health Savings Account (HSA).
If your dependent is going to college you may qualify for a tax credit.
There are two education credits available, the American Opportunity Credit and the Lifetime Learning Credit. The American Opportunity Credit is available only to those students seeking a degree and may be claimed for a maximum of four years per student. The Lifetime Learning Credit is available for any education expenses beyond high school and may be claimed indefinitely. Be sure to track all the expenses associated with your dependent’s higher education.
Dependents also affect the Earned Income Credit.
The amount of Earned Income Credit and the income level threshold both increase with each of the first three dependents.
A situation develops as a child starts to work. Many students take a part time job and have income tax withheld from their paychecks. A dependent may file their own return without claiming their own personal exemption. In this case the child generally will have all of their federal and state taxes withheld during the year refunded to them. If the child and parents both claim the child’s exemption a problem is created which will require more communication with the IRS and either the child or the parent must file an amended return.
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