5 tests a child must meet to be your tax dependent
Sunday, March 20, 2011
Updated March 30, 2019
Children can add a lot to your life. Love. Pride. Expenses.
That last child-related factor can be substantial. Data compiled by the U.S. Department of Agriculture indicate that it costs almost $234,000 to raise a child today and that's not even counting college.
However, children also can help parents reduce their annual tax bill.
The key is making sure that your kids meet the tax definition of a dependent.
While that's usually not a problem when Mom and Dad list Jenny and Johnny as dependents, there still are tax rules that must be met before the IRS will accept the claims.
Qualifying dependent: You need to make sure that your child is, in the IRS' eyes, a qualifying child.
The distinction is important because, in addition to being a tax-saving exemption, a qualifying child also factors into claims for head of household status, the child tax credit, the child and dependent care credit, the exclusion from income for dependent care benefits and the Earned Income Tax Credit, or EITC.
So what does it take for the IRS to deem a youngster a qualifying child for tax dependency purposes?
There are five tests and those requirements, which are this week's By the Numbers figure, are:
The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister or a descendant of any of them.
An adopted child is always treated as your own child. The term "adopted child" includes a child who was lawfully placed with you for legal adoption.
A foster child meets the relationship test if the youngster is placed in your home by an authorized agency or by a judgment or decree or by order of a court or other legally recognized jurisdiction.
The child must be under age 19 at the end of the year and younger than you (or your spouse, if you file jointly); or younger than 24 at the end of the year, a full-time student and younger than you (or your spouse, if filing jointly); or any age if the child is permanently and totally disabled.
For dependent student purposes, on-the-job training, correspondence courses or online-only course work do not count as school.
However, students who work on "co-op" jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students.
To meet the residency test, the child must have lived with you for more than half of the tax year.
There are exceptions for temporary absences. Your child is considered to have lived with you even if the youngster or you are not physically together for a period because of separations caused by illness, education, business, vacation or military deployment.
Additional exceptions are made for children of divorced or separated parents, as well as for children who were born or died during the year. Details on this special situations are in part 1, section three, of IRS Publication 17.
In this case, the support is not the expenses that parents paid to take care of a child. Rather, it refers to the child's income. The youth must not have provided more than half of his or her own support for the year.
For most families, this is not an issue. However, if your kid is the next American Idol winner and rakes in beau coups bucks from the new-found fame, then your child could have a problem meeting this test.
5. Joint return
To be a qualifying child who can be claimed as a tax dependent, the youngster must not file a joint return for the year unless that return is filed only as a claim for refund.
The IRS gives a couple of examples for the joint return test, one where the joint filing invalidates your claim of your child as a dependent and the other where the filing is OK as far as your dependent claim:
You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. The couple files a joint return. Because your daughter filed a joint return, she is not your qualifying child.
Your 18-year-old son and his 17-year-old wife had $800 of interest income and no earned income. Neither is required to file a tax return. Taxes were taken out of their interest income due to backup withholding so they filed a joint return only to get a refund of the withheld taxes. The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met.
Citizenship required: All tax dependents, be they children or other relatives, must meet one other test. The person must be a U.S. citizen, U.S. resident alien, U.S. national or a resident of Canada or Mexico.
There is, however, an exception for certain adopted children.
If you, a U.S. citizen (or a U.S. national), have legally adopted a child who is not a U.S. citizen (or not a U.S. resident alien or U.S. national), you are OK tax-wise as long as the child lived with you as a member of your household all year.
Modern family tax dependent issues: With the many forms that families take nowadays, a child might meet the all the tests and be a qualifying child of more than one person.
But when it comes to claiming a dependent child, only one person can actually do that in a tax year.
The IRS has as special Web page that discusses how to handle a child who can be a qualifying child of more than one person. Publication 17 offers details on how to determine which taxpayer gets to claim a child who qualifies as a dependent for more than one person.
You also might find these items of interest:
- Loss of exemptions could cost some taxpayers
- IRS can now share tax data to help find missing kids
- Adoption tax breaks help cover costs of adding to your family
loan approval requires 2 years tax transcripts, after requesting from our accountant we find out our 2010 e-file was rejected over dependant. he says he doesnt remember reject code thinks dependant already claimed so he prepares paper file sending copy of divorce decree stateing i am eligable to claim dependant. Now i look at taxpapers after filed to see he put wrong last name on dependant. will the irs correct this when they see the last name is on divorce papers? will they drop dependant?, and process taxes? can these 2010 taxes possibly get processed with last name of dependant wrong but ssn is correct? can the irs when paper fileing these see documents prove she is a legite dependant and process?
Posted by: sheri | Friday, April 27, 2012 at 02:04 PM
This posting is excellent, I wish I had a talent for writing. I believe there are not enough resources for families that are day to day life scenarios.
Can a 19 yr old claim his 16 yr old brother as a dependent and get EITC for the brother? Both boys live with their mother. The mother is on social security disability only and has no filing requirement and thus no AGI. All three of them live with the grandmother. The grandmother has no earned income a 15k pension from deceased husband and 12k social security. The older son earned about 9,000 the younger has no income. The older boy can in fact claim his younger brother.
I don't think there are any online programs that will navigate to that answer. I think a very large percentage of preparers would ever have an interview with the family to discover the correct answer.
Jeff Day EA
Posted by: Jeff Day | Tuesday, May 10, 2011 at 09:37 AM
Very useful post :)
Posted by: Jobs in delhi | Tuesday, March 22, 2011 at 02:28 PM