It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.
D is for dependents.
Dependency is a funny thing. We typically use the word “dependent” when referring to our kids, but for tax purposes, it’s possible that your own child might not be a dependent while your niece, nephew – and even your own parents – might be. Here’s what you need to know.
Generally, for U.S. tax purposes, a dependent must:
- Be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico;
- Have a valid tax ID number; and
- Be either your qualifying child or your qualifying relative.
Your child isn’t necessarily a qualifying child. A person is your qualifying child if that person meets all of these tests:
- Relationship test. The child must be your child, stepchild, adopted child, foster child, brother or sister, or a descendant of one of these.
- Residence test. The child must have the same residence as you for at least half of the tax year.
- Age test. The child must be under age 19 at the end of the tax year; under age 24 and a full-time student for at least five months out of the year; or totally and permanently disabled.
- Support test. The child must not have provided more than half of his or her own support during the tax year.
- Return test. The child, if married, must not have filed a joint return with his or her spouse.
This being tax law, of course, caveats and exceptions apply. For example, college students may still be considered dependents even if they live away from home. There are also exceptions for other absences during the year including children who were born or died during the year, children of divorced or separated parents or parents who live apart, and kidnapped children.
If you take care of someone who is not your qualifying child, you still may be able to claim that person as a dependent if he or she is a qualifying relative. A person is your qualifying relative if that person meets all of these tests:
- Not a qualifying child test. A person is not your qualifying relative if he or she is your qualifying child or the qualifying child of any other taxpayer.
- Member of household or relationship test. To meet this test, a person must either live with you all year as a member of your household, or be related to you as your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild); your brother, sister, half-brother, half-sister, stepbrother, or stepsister; your father, mother, grandparent, or other direct ancestor, but not foster parent; your stepfather or stepmother; a son or daughter of your brother or sister; a son or daughter of your half-brother or half-sister; a brother or sister of your father or mother; or one of your in-laws (including your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law).
- Gross income test. To meet this test, a person’s gross income for the year must be less than $4,000. Gross income is all income in the form of money, property, and services not exempt from tax. That means that Social Security benefits are excluded if they are not taxable.
- Support test. To meet this test, you generally must provide more than half of a person’s total support during the calendar year.
You’ll notice there is no test for age on the list. Unlike the criteria for determining whether a person might be a qualifying child, there is no age test for a qualifying relative. A qualifying relative can be any age, so your parent or grandparent could qualify so long as he or she meets the other criteria.
There is also no specific residency test for a qualifying relative. Your parent, in-law or other qualifying relative doesn’t actually have to live with you: he or she can live in his or her own home, a nursing home or an assisted living facility and still qualify as your dependent so long as he or she meets the other criteria.
One more note: you won’t see spouse on the list. A spouse is never your dependent – even if it sometimes might feel like it.
Once you’ve determined who qualifies as your dependent, you can deduct a personal exemption amount for him or her on your own taxes. The exemption amount reduces your taxable income: the more dependents, the larger the potential deduction (it’s really an exemption but it acts like a deduction). Phaseouts apply as income gets bigger so be sure and check the tables each year.
For more Taxes A to Z, check out: