In the United States, a qualified dependent is an individual you get to claim on your federal income taxes. Each dependent can substantially reduce your taxable income – ultimately lowering your taxes.
In 2016, the personal exemption will increase from $4,000 to $4,050. For a household of four (married couple with two qualifying minors), these exemptions will reduced taxable income by $16,200 (line 42 on the Federal form 1040).
For a household in a 15% tax bracket, that could mean thousands of dollars in tax breaks.
Listen as ex-IRS Agent, Andy Magnus, discuss qualified dependency requirements:
Click here –> [18:34]
Additional qualified dependent tax breaks
Not only do you get to use dependents as exemptions, each qualified dependent could make a big difference other areas too:
• Child tax credit (line 52 on federal form 1040)
• Additional child tax credit (line 67 on federal form 1040 and Schedule 8812)
• Credit for child and dependent care expenses (line 49 on federal form 1040 and form 2441)
Note: These credits were in effect for TY2015 and are subject to change
How to know if you can claim a dependent
To be able to clam someone as a dependent in TY2016, that person has to pass these five tests:
- Related to you: Son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or an offspring of any of them.
- Under age 19 or under age 24 if a full time student
- Must have lived with you more than half the year
- You provide more than half of their support
- They do not claim their own exemption or a joint return with his/her spouse
The same test applies to foster children or an adopted child.
Qualifying dependents do not have to be children
A qualifying relative does not mean it has to be a child. It can be a relative or a member of your household all year long.
For example: Two people living together, not married, and one has a child. The man provides all the financial support while the female stays how to care for the baby. The man would claim the exemptions because he is providing all the financial support – even if the child is not his own.
Contact a qualified tax professional if you have any questions about qualifying a dependent on your taxes.
You can find Andy Mangus, Ex-IRS agent and experienced CPA, at ProactiveTaxPros.com
When qualifying a dependent gets tricky
Claiming a dependent on your tax return gets cloudy in the following situations:
- When a child is making their own money: Their income could be substantial or it could be a part-time job during the summer. If they claim the exemption on their own tax return then nobody else can. Young adults may not be aware of this rule before filing their first income tax return.
- Divorced or separated parents: A divorce decree may state who gets to claim a dependent child – regardless of who is providing the majority of financial support. If it is not stated in the divorce decree then we have to look at who is providing more dollars of support and/or where is the child living the majority of the year.
- The elderly: Do you provide more than half the support for an elderly parent? Do they contribute their social security income to help ease the financial burden? These are things that need to be considered before adding grandma as a dependent on your tax return. The same applies if you are paying for an elderly adult’s care in an assisted living situation. You can claim them on your income tax return if you provide more than half of the support of their care.
What are qualifying expenses?
An expense that can be counted towards support used for a qualified dependent are:
- Lodging including utilities
- Medical coverage and care
- Incidentals required for raising a child
Andy reminds us it is extremely important to keep good records to prove validity in qualifying the child/dependent as well as the additional tax breaks that can come along with them.
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