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Dependent

A term used for a person who depends on a taxpayer for living and financial support and enables the taxpayer to claim dependent care tax benefits on tax returns

What is a Dependent?

Dependent is a term used for a person who relies on a tax filer for financial support and enables the tax filer to claim dependent care tax benefits on the annual tax return. The Internal Revenue Code (IRC) determines the eligibility criteria for a person to be considered a dependent of a taxpayer. According to the 1961 Income Tax Act, an individual who is liable to pay income taxes can claim deductions if he/she has incurred expenses for the care of dependents.

 

Dependent

 

Summary

  • A dependent is a term used for a person who depends on a taxpayer for living and financial support and enables the taxpayer to claim dependent care tax benefits on tax returns.
  • The taxpayers need to know the criteria for claiming someone as a dependent, as this can help them save hundreds or thousands of dollars on taxes.
  • The relationship test by the Internal Revenue Code determines whether a dependent is the taxpayer’s qualifying child or qualifying relative – such as a parent or sibling.

 

Importance of Claiming a Dependent

The taxpayers must know the criteria of claiming someone as a dependent since this saves them hundreds or thousands of dollars on taxes. Up until 2017, a taxpayer was able to decrease his/her taxable income by a maximum amount of $4,050 on every claimed dependent. Since 2018, the following changes have been made in the exemptions:

  • Standard deductions have increased
  • The Child Tax Credit has increased to a limit of $2,000 (per qualifying child)
  • The limit of Additional Child Tax Credit has increased to $1,400 (per qualifying child)
  • A new Credit for Other Dependents worth a maximum of $500 (per qualifying dependent other than a dependent child)

 

Qualification Criteria for Dependents

There are two types of dependents, and different rules are followed for each:

  1. A qualifying child
  2. Another qualifying dependent/relative

 

The following are the common criteria to be met to claim a person as a dependent:

  1. The concerned person must be a U.S. national, a U.S. citizen, a U.S. resident, a Canadian resident, or a resident of Mexico.
  2. The person should not have claimed another dependent on his/her tax form or taken a personal exemption.
  3. The person can be married and file a tax return but not a joint return for the tax year except when claiming a return.
  4. He/she must have one of the following:
    • A Social Security number
    • An Adoption Taxpayer Identification Number (ATIN)
    • An Individual Taxpayer Identification Number (ITIN)

 

Apart from the above criteria, there are additional – but different – conditions to be satisfied for the two types of dependents. They are as follows:

 

Criteria for a Qualifying Child

  • The child can be the taxpayer’s biological child, adopted child, authorized foster child, sibling, half-sister, half-brother, or an offspring of siblings or half-siblings.
  • The child must be under 19 years of age or under 24 if he/she is a full-time college student. In case the dependent child is a full-time student, he/she must have attended school for at least five months during the tax year. There is no age restriction if the child is permanently disabled.
  • The child should have spent more than 6 months living as a household member of the taxpayer. However, there may be exemptions.
  • The child may be working; however, his/her job should not provide him/her with more than half of the financial support.
  • A child must be declared as a dependent by only one parent if the child’s parents are divorced. Usually, the custodial parent is eligible to claim the child as a dependent.

 

Criteria for a Qualifying Relative

  • The person should not be a qualifying child of anyone filing the tax return.
  • The person must have lived as a household member of the taxpayer or must be related to the taxpayer, such as a sibling, parent, uncle or aunt, or grandparent. The person who is not related to the taxpayer can be a dependent if he/she has lived all year with the taxpayer.
  • The person must not have earned more than $4,200 as gross income.
  • The taxpayer must have provided the person with over half of his/her monetary support for the tax year.

 

More Resources

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • After-Tax Income
  • Earned Income Credit (EIC)
  • Modified Adjusted Gross Income (MAGI)
  • Social Security Benefits

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