In tax planning or when you are filing your taxes, a dependent is someone for whom you are providing substantial financial support during the tax year. There is a set of criteria that one must meet to be considered a dependent. Some of these things include their age and their relationship with you. Being able to claim your dependents on your tax return can save you a considerable amount of money.
But as mentioned previously, you cannot just add someone as your dependent just because you can. You need to understand what qualifies an individual as a dependent since it can drastically change your tax liability depending on who you are supporting. This fact is especially true for larger families or for people who are caring for aging relatives.
Defining a Dependent
A dependent is a person that you need to support financially. You may be supporting them because they are a child, an aging relative, or an older relative who is unable to support themselves.
Two Types of Dependents
The IRS acknowledges two types of dependents: qualifying children and qualifying relatives.
A qualifying child must meet the following standards:
- The individual must be your child, stepchild, foster child
- The IRS will also consider your sibling, half-sibling, or stepsibling, or a descendant of any of these individuals.
- The child must be younger than you and must be 18 years old at most at the end of the tax year.
- The IRS will acknowledge someone younger than 24 years old if they are a full-time student for at least five months at the end of the tax year. They will also acknowledge someone who is permanently disabled.
- The child must live with you for more than half the year unless they are living away at school. Military deployment is also an exception. But they must intend to return to your home after their time away.
- The child cannot have paid for more than half of their own needs for the course of the tax year.
- Lastly, you must be the only person claiming them.
In case you and your spouse are divorced, the parent with whom the child lived more during the year has the first right to claim the child. If the child lived with each parent equally, the parent with the higher adjusted gross income can claim them.
Qualifying relatives must also meet the following criteria:
- They must be your parents or grandparent. If they are not as closely related to you, they must have lived with you all year. You can find the list of types of relatives who don’t have to live with you.
- They must not be your qualifying child.
- They must not be the qualifying child of another taxpayer.
- The relative cannot have earned $4,300 or more for the entire tax year. Note that this limit can increase annually to keep pace with the economy.
- You must be providing or must have provided more than half of the relative’s total financial support for the year.
Keep in mind that you must be the only person eligible to claim a qualifying relative as a dependent. If this is not the case, you can submit Form 2120, the “Multiple Support Agreement,” to the IRS.
Additional Requirements for Claiming a Dependent
You need to pass three additional requirements before you can qualify for claiming either of these types of dependents:
Dependency Taxpayer Test
You are not permitted to have dependents if you can be claimed as someone else’s dependent.
Joint Return Test
If the person you are claiming as a dependent is married, you need to check if they filed a joint tax return. In case the couple in question did, you may not claim the individual as a dependent.
Citizen or Resident Test
Your dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of either Mexico or Canada.
A dependent is someone for whom you provide a significant amount of financial support throughout the tax year. They can help you reduce the amount of tax you need to pay. However, you cannot just list anyone as your dependent– they need to meet the criteria that the IRS has set. They must also pass a series of tests to be claimed on your tax return.
You can work with a professional accountant to ensure that you are filing your tax return the right way with the right dependents.