What Are the Rules to Claiming a Dependent On Your Taxes?
Tax season is a time full of anticipation for many who receive a refund. Goals are set to pay off bills, have some fun, invest some money, go on a vacation, and a long list of other things that that living check to check usually miss out on the rest of the year. Yes, tax time is an excellent time.
It also happens to be a very stressful time for many who are facing new situations. I am perfectly fine, calm, and confident when I know that we have faced no big changes the previous year because I pretty much know what to expect when I file our taxes. I know what deductions and tax credits I can claim and it takes me no more than 15 minutes or so to hop online and get those bad boys done.
Then, there are those years that something has changed, and suddenly I am not so confident. It takes me three or four times as long to file our federal tax return because I read and re-read everything over and over again to make sure I have it all done correctly.
How to Claim a Dependent on Your Taxes
Even those who pay someone else to file their taxes run into years that they are unsure of what to expect. One of the big changes that always throws people is adding someone new to the family, whether that means having a baby or bringing Grandpa to live with them.
It’s okay- we understand how confusing it can be. Claiming a dependent can seem like a very complicated thing, so we are here to simplify it for you. This guide should cover all of your questions about claiming a dependent.
Benefits of Claiming a Dependent
The foundational benefits of claiming a dependent are as simple as this:
They can increase the amount of tax refund you receive or decrease the amount of taxes you have to repay. In short, you either save money or get money in the form of a refund, depending on the particulars of your tax documents and factors.
Dependent Tax Credits
Claiming a dependent means getting tax credits that you otherwise do not have access to, such as:
1. Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is given to those who meet the income requirements according to how many children they have. It offers a tax relief to individuals and families with modest to low-income. Meeting the eligibility criteria allows you to utilize the credit to lower your tax liabilities, and possibly enhance your tax refund. Income limits increase according to the number of children you have and your filing status, and the amount of the credit you receive varies according to the same factors.
2. Child and Dependent Care Tax Credit
This tax credit is for anyone who has to pay for the care of a dependent for the purpose of work. For instance, if you pay daycare for your toddler while you work, you can claim this tax credit. 20% to 35% of up to $3,000 (for one qualifying dependent) or $6,000 (for two or more qualifying dependents. In order to qualify, the dependent must either be 13 years old or younger, or he or she much be physically or mentally disabled to such a degree that they cannot care for themselves.
3. Child Tax Credit
With the Child Tax Credit, you can get up to $2,000 per child who is under the age of 17. Individuals with a yearly income of less than $200,000 and couples with less than $400,000 can receive the entire credit amount.
4. Additional Child Tax Credit
If the Child Tax Credit reduces your tax liability to $0 and there is anything left, it can be given to you in the form of the Additional Child Tax Credit refund. The amount of this credit will vary depending on the income limits that affect the Child Tax Credit, but it can go up to $1,400 per qualifying child.
Other Tax Credits and Deductions
If your child is in college, you are paying on student loan interest, or you are paying college tuition, there are several tax credits you can claim. The one you claim will depend on whether you are claiming the standard deduction or if you are itemizing.
If you are itemizing, you can also claim deductions for any medical expenses you pay for your dependent. Every year, my refund is higher by claiming the standard deduction. However, I always take the time to put in any itemized expenses so that I will know for sure which deduction is best. You, too, will probably find that the standard deduction is best, but it never hurts to be certain.
If you adopt a child, you can get a credit for up to $14,300 of the total adoption costs.
There is a downside to all of these tax credits: They often delay your refund some. This year, for instance, I filed my taxes in mid-January. I always keep a close eye on the status of my refund until it reaches me because my husband and I had a surprise- and not a good one- about nine years ago.
As such, I use the IRS’s tool to find my refund once a day after filing to keep up with the progress. About three days after filing, I got the message that the IRS was not allowed to start processing refunds with one of the credits I qualified for until between the middle of February and the end of February.
It is never fun to have to wait on a check you need, especially not when you have done everything you need early. Unfortunately, this is often the way it is with tax credits.
On the positive side, though, it is worth the wait. I would rather get a good tax refund and have to wait a few extra weeks than to get a small refund. I mention these delays not to discourage you from claiming the tax credits but rather to help you know what you should expect.
Who Can You Claim as a Dependent?
A dependent is someone who you take care of- you provide at least half of his or her support. Who they are matters much less than what exactly you do for them. Here are the general requirements for claiming a dependent according to the category they fall into:
1. Claiming a Dependent Child
Children under 18 are the most obvious dependents, but they must meet the following criteria before legally claiming a dependent on your taxes:
The child must be a relative: your own son or daughter, a sibling, a stepchild, or a child of any of those. They do have to be younger than you, so you cannot claim an older sibling under normal circumstances. This is a bit different if he or she is mentally disabled.
He or she must be 18 or under. If the child was a full-time student for at least five months of the previous year, you can claim them until they are 24.
The child must have lived with you for at least half of the year.
2. Claiming a Dependent Child When You Are Divorced
Divorces are messy enough without adding extra trouble, so let’s try to keep it clean when it comes to who claims the kiddos.
Under most circumstances, children live with one parent and visit the other one. In this case, the parent who the child resides with most of the year gets to claim the child. Let’s say that Donna and Phillip are divorced and have two children: Kate and Josh. The kids live with their mom most of the time and visit Phillip on weekends and a few weeks each year. In this case, Donna should claim the kids.
What if Josh and Kate split their time equally between both parents? If this is the case, the parent with the highest AGI, or adjusted gross income, should claim the child.
If Phillip provides more financial support than Donna, Phillip may claim the child.
If Phillip and Donna both have equal time with the children and each provides half of their support, they may find it best to each claim one child. Always check with your tax specialist, though, to ensure you are making the wisest decision.
If Josh and Kate are Donna’s children from a previous marriage, Donna has all rights to claiming them.
Sometimes, judges will state in the divorce papers who can claim the children on taxes. If things are fairly equal, the judge will likely have the parents rotate years.
It is important to note, though, that if there is no official paperwork stating that Phillip can claim the children, Donna is most likely not obligated to let Phillip claim them at all. This is not to say that the IRS will not approve a claim Phillip has put in. It is more that if both parents tried to claim the kids, any refunds would be delayed while the IRS determines who has the right to claim the dependents. It is best for everyone to make agreements official from the get-go.
3. Claiming Other Relatives or Unrelated People
You can claim people who are not your children, as long as they meet certain qualifications:
You financially support them- you take care of more than half of their support each year.
They are related to you or have lived with you all year.
Their gross yearly income cannot exceed $4,200.
No one else can be able to claim them.
4. Examples of Qualifying Relatives or Unrelated Dependents
Every person’s situation is unique, so you may not match up directly with these examples. Still, you can use them as basic guidelines to understand dependents who are not qualifying children.
- 1. An Adult Child - While we all sincerely hope that our children will grow up healthy and prepared for adulthood, there are times that they hang around way past college years. The good news is that as long as you provide more than half of their support and they do not exceed the income threshold, you can still claim them on your taxes. Instead of being a qualified child, though, they will be a qualifying relative instead of a qualifying child.
- 2. Someone You Care For - As time marches on, children often find themselves taking care of their parents. We often take them in when they are sick or if one passes before the other one. We take on the responsibility of not only caring for them but also filling the void they likely feel when they lose their spouse. Sometimes it is a mentally or physically disabled relative, like an uncle who had a car accident or back surgery. Maybe you let him stay at your house while he heals and gets well. As long as they either live with you or they are related to you and you provide more than half of their support for the year, you can claim them as a qualifying relative. This, of course, is dependent upon whether or not their own income exceeds the threshold.
- 3. Live-In Boyfriend/Girlfriend - If you have a boyfriend or a girlfriend who lives with you who you take care of, you can claim them as a dependent as long as they meet the criteria above. If that boyfriend or girlfriend has a child that also lives with you and who you take care of, you may claim the child as well. This one can get a little tricky, though, so you have to be careful. Make sure that the noncustodial parent is not claiming the child on his or her taxes. It is also always best to speak it over with your boyfriend or girlfriend. They might already have plans for claiming the child, so you need to know what is going on before you file your own taxes.
What If My Dependent Has a Job?
It can get a bit more confusing claiming a dependent when that dependent is making his or her own income. My teenage son started working this year, so I understand. First, their gross income can not go over $4,200 for the entire year. Somehow, my kid was blessed with a really well paying job for his first one, so he is definitely on the path to exceed that.
If, however, your dependent does not exceed that threshold and you provide more than half of their support for the year, you can still claim them. The $4,200 threshold is valid for now. Check back each year prior to filing as it can change.
You must also take into account the dependent’s filing status. If he or she is married and files jointly with their spouse, you cannot claim them.
What You Will Need When Claiming a Dependent
When you are getting ready to file your taxes and you will be claiming a dependent, there is some information you need to have ready.
1. First and foremost, you need their identifying information handy. This includes their full names, their social security numbers or individual taxpayer identification number, birthdays, and so on just like you need for yourself.
2. You should be prepared to answer questions such as how much support you provided the previous year.
3. Also, do not forget to have any financial forms from their college at hand as well as any expenses you cover that you want to itemize. Be sure that you keep a copy of all of these documents just in case you are ever audited for some reason.
4. While having written permission to claim any children as a dependent is not necessary, it cannot hurt, especially if you are divorced or going through a divorce. It could also be handy for those claiming a girlfriend’s or boyfriend’s kid, too. Having it in writing is just a precaution in case you ever need to defend yourself.
Expect Changes
It is rare that things stay exactly the same, especially when it concerns finances. While the guidelines we have mentioned here are valid for the 2020 tax year, it is always a good idea to check for any changes that have been made prior to filing your taxes each year. The last thing you want is to be expecting one thing and then getting a terrible surprise because you were not aware of changes.
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Conclusion
Knowing the rules of claiming a dependent can seem a little confusing, especially if your particular situation is not spelled out clearly. The good news, though, is that all dependents must meet very simple and basic requirements, which are that they are a U.S. citizen or legal resident, they are either related to you or live with you, you provide more than half of their support for that tax year, and they do not exceed the income threshold, file with a spouse, and no one else can claim them.
As long as the person in question meets those rules, you can claim them as a dependent. From there it is simply a fact of determining what kind of dependent they are. If you feel you are in over your head or need more clarification, ask a tax professional. They can help you understand if someone does or does not qualify as a dependent and what kind of dependent they should be filed as.
A financial advisor can also help you maximize your tax benefits. Consider consulting one about your financial situation and goals. They have a lot of knowledge and wisdom you can take advantage of.