Claiming a dependent on your tax return makes all the difference when it comes to taxes. Adding a dependent on your tax return increases the exemption amount you can claim, which in turn reduces your taxable income and your tax liability.
Before claiming someone as a dependent on your tax return, you have to make sure that the person meets all the Internal Revenue Service (IRS) requirements for a dependent.
- A taxpayer can claim a number of credits or deductions on their taxes if they have qualifying dependents.
- The most common dependents are children, but other dependent family members may also qualify.
- Tests in the Internal Revenue Code (IRC) establish a person's eligibility to be a taxpayer's dependent for tax purposes.
Who Is a Dependent?
A dependent is generally defined as someone you take care of financially or otherwise. A dependent could be a child, a relative, or even a friend. However, for tax purposes, not everyone you take care of qualifies as a dependent.
The IRS has come up with a few rules to help you determine who a qualifying child or relative is. In this article, we'll walk you through those rules.
Rules for Qualifying Children as Dependents
According to the IRS, the uniform definition of a child is a natural child, an adopted child, a stepchild, or an eligible foster child. In addition to meeting this definition, a dependent who is claimed as a qualifying child has to meet all four of the following tests:
- The Relationship Test: A qualifying child can be a sibling, a stepsibling, or a descendant (a grandchild, for example), as well as other relationships mentioned above.
- The Residency Test: a qualifying child has to have the same residence as the taxpayer for more than half the year. There are exceptions for temporary absences. If a qualifying child is away from home because of custody arrangements, school, an illness, military duty, or business, that child will still meet the residency test.
- The Age Test: A qualifying child has to be either under the age of 19 or both under the age of 24 and a full-time student for at least five months of the year. There is no age limit for someone who is permanently and totally disabled.
- The Support Test: The individual who is being claimed as a dependent must not have provided more than half of the cost of their own support. If you're trying to claim an individual who has a job and partially takes care of themselves, you have to make sure that you can prove that.
Qualifying Child Tests and Various Credits
These four tests are the basic tests for a qualifying child, but, depending on the tax credit you're trying to claim, there are additional tests that must be met:
- Dependency Exemption and Head-of-Household Filing Status: The individual claimed as a dependent must meet the four basic tests in addition to two other ones:
- Citizenship Test: A qualifying child for the dependent exemption must be a U.S. citizen, U.S. national, or a resident of the United States, Canada, or Mexico.
- Joint-Return Test: If a dependent is married and files a joint return with a spouse, the dependent does not count as a qualifying child. The only exception to this rule is if the dependent and the spouse are not required to file taxes and only do so to get a refund.
- Child and Dependent Care Credit: The individual claimed as a dependent must meet the four basic tests, but there is a modification when it comes to the age test. For the child and dependent care credit, the dependent must be under the age of 13 unless the individual is permanently or totally disabled.
- Child Tax Credit: A child is your qualifying child for the child tax credit if they meet the four basic tests except for the age test: The child must be under the age of 17 and must be claimed as your dependent.
- Earned Income Credit (EIC): A qualifying child for the EIC has to meet only three of the basic dependent tests: the relationship, age, and residency tests. In addition to meeting those three basic tests, the child must have lived with you in the U.S. for more than half the year.
Tie-Breaker Rules for Determining a Qualifying Child
If there is ever a situation in which a child qualifies as a qualifying child for two taxpayers, the following tie-breaker rules developed by the IRS should be used to determine which taxpayer claims the tax benefits:
- When two taxpayers cannot determine who will claim a child, the child will be the qualifying child of the parent.
- If both taxpayers are the child's parents and they do not file a joint return, the parent who can claim the child will be the parent with whom the child lived for the "longest period of time during the year."
- If it turns out that the child lived with both parents for an equal amount of time, the parent with the highest adjusted gross income (AGI) can claim the tax benefits.
- If none of the taxpayers is the child's parent, the taxpayer with the highest AGI can claim the benefits.
Rules for Qualifying Relatives
Some dependents don't fall into the category of a qualifying child but may meet other standards and tests set by the IRS, which enable you to get certain tax credits. In addition to the joint return and citizenship tests, a qualifying relative has to meet the following four rules:
- Qualifying Child Test: To be a qualifying relative, the individual cannot be a qualifying child for anyone else. In other words, a dependent is only a qualifying relative if they do not meet the qualifying child tests for you or another taxpayer.
- Relationship Test: A qualifying relative can be a child or descendant of a child, a sibling, a stepsibling, a descendant of a sibling, a parent or stepparent, an ancestor of a parent (a grandparent, great-grandparent, etc.), an uncle or aunt, a father-in-law or mother-in-law, or an individual who lives with the taxpayer for the entire year, regardless of whether the individual is related to the taxpayer, as long as the relationship between the taxpayer and the individual does not violate local law.
- Gross-Income Test: The dependent's income cannot be above a certain amount. For the 2020 and 2021 tax years, that amount is $4,300.
- Support Test: For a dependent to be a qualifying relative, the taxpayer must have provided more than half of their support. Note the difference between the support test for a qualifying relative and a qualifying child. For a qualifying child, the taxpayer has to prove that the dependent (the child) provided half or less than half of their own support; for a qualifying relative, the taxpayer has to prove that the taxpayer provided more than half of the dependent's support.
The Bottom Line
If your dependent-care situation is not straightforward, determining whether an individual is a qualifying child or relative can be confusing. If you can't determine whether a person qualifies as your dependent, contact the IRS at 1-800-829-1040 or call a local IRS office.