The tax rules surrounding the dependency exemption deduction on a federal income tax return can be complicated, with many requirements involving who qualifies for the deduction and who qualifies to take the deduction.
The deduction can be a very beneficial tax break for taxpayers who qualify to claim dependent children or other qualifying dependent family members on their return. Therefore, it is important to understand the nuances of claiming dependents on your tax return.
IMPORTANT TAX LAW CHANGE: Exemptions were suspended by the Tax Cuts and Jobs Act of 2017. You can’t claim any exemptions on your taxes for any tax years between 2018 and 2025. However, various tax credits may be available for your dependents under this 2017 tax act. As a result, the below discussion is still relevant in the determination of the availability of certain tax credits such as the child tax credit, the additional child tax credit, other dependent credit, or the earned income tax credit that are tied into the definition of dependent.
You are allowed one dependency exemption deduction for each person you claim as a qualifying dependent on your federal income tax return.
If someone else may claim you as a dependent on their return, however, then you cannot claim a personal exemption for yourself on your return. Additionally, your standard deduction will be limited.
Only one taxpayer may claim the dependency exemption per qualifying dependent in a tax year. Therefore, you and your spouse (or former spouse in a divorce situation) cannot both claim an exemption for the same dependent, such as your son or daughter, when you are filing separate returns.
The term “dependent” includes a qualifying child or a qualifying relative. There are a number of tests to determine who qualifies as a dependent child or relative, and who may claim the deduction. These include age, relationship, residency, return filing status, and financial support tests.
The rules regarding who is a qualifying child (not a qualifying relative, which is discussed below), and for whom you may claim a dependency deduction on your 2010 return, generally are as follows:
— The child is a U.S. citizen, or national, or a resident of the U.S., Canada, or Mexico;
— The child is your child (including adopted or step-children), grandchildren, great-grandchildren, brothers, sisters (including step-brothers, and -sisters), half-siblings, nieces, and nephews;
— The child has lived with you a majority of nights during the year, whether or not he or she is related to you;
— The child receives less than $3,650 of gross income (unless the dependent is your child and either (1) is under age 19, (2) is a full-time student under age 24 before the end of the year), or (3) any age if permanently and totally disabled;
— The child receives more than one-half of his or her support from you; and
— The child does not file a joint tax return (unless solely to obtain a tax refund).
The rules for claiming a qualifying relative as a dependent on your income tax return are slightly different from the rules for claiming a dependent child. Certain tests must also be met, including a gross income and support test, and a relationship test, among others. Generally, to claim a “qualifying relative” as your dependent:
— The individual cannot be your qualifying child or the qualifying child of any other taxpayer; — The individual’s gross income for the year is less than $3,650;
— You provide more than one-half of the individual’s total support for the year;
— The individual either (1) lives with you all year as a member of your household or (2) does not live with you but is your brother or sister (include step and half-siblings), mother or father, grandparent or other direct ancestor, stepparent, niece, nephew, aunt, or uncle, or inlaws. Foster parents are excluded.
Although age is a factor when claiming a qualifying child, a qualifying relative can be any age.
For more insight into this area please read Dependent: Qualifying Relative.
Certain rules apply when parents are divorced or separated and want to claim the dependency exemption. Under these rules, generally the “custodial” parent may claim the dependency deduction. The custodial parent is generally the parent with whom the child resides for the greater number of nights during the year.
However, if certain conditions are met, the noncustodial parent may claim the dependency exemption. The noncustodial parent can generally claim the deduction if:
— The custodial parent gives up the tax deduction by signing a written release (on Form 8332 or a similar statement) that he or she will not claim the child as a dependent on his or her tax return. The noncustodial parent must attach the statement to his or her tax return; or
— There is a multiple support agreement (Form 2120, Multiple Support Declaration) in effect signed by the other parent agreeing not to claim the dependency deduction for the year.
For more insight be sure to review Divorced or Separated Parents: Claiming Children As Dependents.
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