Properly defined dependents can pay off
Even after the child meets the four qualifying tests, there are two other considerations before he or she can be claimed as a dependent for exemption purposes.
The youngster generally must also be a U.S. citizen, U.S. national or a resident of the United States, Canada or Mexico. An exception applies for certain adopted children.
And if married, the child cannot file a joint return unless the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.
Other dependent relatives
Other relatives also might be your tax dependent if they meet similar qualifying tests.
The first requirement is, obviously, that the person not be your qualifying child for tax purposes. The person also cannot be considered the dependent child of anyone else.
The person must live with you for the full tax year or be related to you. Relatives who do not have to reside in your home but who can be claimed as tax dependents include parents, siblings, grandparents, nieces and nephews, aunts and uncles and in-laws.
Your dependent relative must earn less than the personal exemption amount during the year, and he or she must get more than half of his or her total support for the year from you.
Qualifying relatives also must meet the same citizenship and joint tax filing requirements as do qualifying children.
Sometimes a child can be the qualifying child of more than one person. However, because the IRS only allows one taxpayer to claim the same youngster, all eligible taxpayers must decide who will claim the child and any ensuing tax benefits.
If you can't agree and both of you list the youth on separate returns, expect the IRS to disallow one or more of the claims using tiebreaker rules.
- First, the agency looks at whether only one person is the child's parent. This would be the case, for example, if one credit claimant is a stepparent. The parent would get the credit.
- If both taxpayers are the child's parents, then the parent with whom the child lived the longest during the tax year would be allowed the credit. If the child lived with both separated parents for an identical amount of time, the credit would go to the parent with the highest adjusted gross income.
- Finally, if neither person is the child's parent, the IRS would then allow the credit to the filer with the highest eligible AGI.
If several children are involved in a family situation where two taxpayers may claim them, the adults can decide to share the children for tax purposes. For example, you and your three children live with your mother. You can claim one child as a dependent and your mother can claim the other two. Again, if such a sharing agreement cannot be reached, the tiebreaker rules would come into play.
Final exemption factors
A spouse is never considered a dependent. However, you can claim an exemption for your husband or wife as long as you file a joint return.
You also are allowed an exemption deduction for yourself. But if you file a return while being claimed as a dependent on someone else's 1040, the IRS warns that you won't be able to claim a personal exemption on your own return.
Details and relationship dependency examples are available in IRS Publication 501, Exemptions, Standard Deduction and Filing Information.