One of the most common questions I receive from clients, family, and friends is about dependents – and when to claim a dependent exemption. Whether it’s parents who are still caring for adult children, or children who are caring for elderly parents, there are many situations wherein a taxpayer may be able to claim a dependent exemption. The IRS classifies dependents into two categories: qualifying child, or qualifying relative.
A qualifying child is a son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or descendant of any of the aforementioned relatives. The qualifying child:
- must be under 19 years of age, as of the end of the year, and younger than the taxpayer;
- must be under 24 years of age as of the end of the year, if they are a student; or
- can be any age if they are permanently, or totally, disabled.
Further, the qualifying child must have lived with you for more than half of the year, with some exceptions, and must not have provided more than 50% of their own support for the year. Lastly, a qualifying child cannot file a joint return, but can file their own single return.
A qualifying relative is a person who doesn’t meet the tests for a qualifying child, but does meet the following tests:
- they are a relative (the IRS has a specific definition of relative in this instance),
- they are someone who has lived with you all year as a member of your household,
- the person’s gross income for the year is less than $4,050, and
- they receive more than 50% of their total support from you.
If you can claim someone as a dependent and they are filing their own tax return, and/or someone else is also able to claim the dependent, only one of you can take the dependent exemption. Divorced parents should coordinate who is claiming the dependent exemption each year in order to avoid any filing issues.
There can also be some coordination between parents and higher education students regarding who would benefit most from the dependent exemption. If the parent wants to claim an education credit for the student, they also need to claim the student as a dependent, assuming they qualify.
On the other hand, it might benefit the family to instead have the child, who the parents can claim as a dependent, take their own dependent exemption. This enables the student to take the education credit if their parents have phased out of it. Depending on the individual tax circumstances, it may make more sense for the qualifying child or relative to take their own dependent exemption.
As the rules regarding dependents are complex, the above information is just a brief overview. As with everything in the tax code, there are exceptions – and exceptions to the exceptions. If you are unsure about your personal situation, please contact Clark Nuber. We can make sure you are optimizing this exemption.
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