What Is a Dependent?
A dependent is a qualifying person who entitles a taxpayer to claim dependent-related tax benefits on a tax return. Tests in the Internal Revenue Code (IRC) establish a person's eligibility to be a taxpayer's dependent for dependency claims.
A dependent may be a qualifying child or a qualifying relative with status as determined by Internal Revenue Code (IRC) tests. To qualify their dependent status, the individual must meet specific requirements. Qualifications include passing the dependent taxpayer test of not being the dependent of a taxpayer who is also dependent, being either a qualifying child or qualifying relative, or passing the joint return test, where they cannot have filed specific joint returns. Furthermore, the dependent needs be a U.S. citizen or a North American resident passing the citizen/resident test.
Qualifying As a Dependent
The IRC relationship test determines if a dependent is a qualifying child or relative such as the taxpayer's sibling. The category of a child includes those individuals who are under the age of 19, are disabled, or a student under age 24. Qualified child dependents must have lived with the taxpayer for more than half the year and not have earned more than half of their financial support.
A qualifying relative dependent must have lived as all year as a member of taxpayer’s household and pass the relationship test to be listed as a Member of Household. Furthermore, the dependent relative may not be the taxpayer’s qualifying child, have more than $4,200 gross income (2019 limit), and received more than half of their financial support from the taxpayer.
A person who meets all these tests is the taxpayer’s dependent for purposes of claiming a dependency-related exemption, filing status or credit. Dependency exemptions a taxpayer may claim include head of household (HOH) or qualifying widow(er) (QW) filing status.
Credits for Dependents
Income-specific credits such as earned income tax credit (EITC) and child tax credit (CTC) are specific to variations on age, relationship, support, and income. Other possible credits include the additional child tax credit (ACTC) and the child or dependent care credit (CDCC).
Only one taxpayer may claim a given dependent on their income tax return, particularly crucial in cases of dual custodial parents. Multiple support agreements resolve dependency claims by more than one taxpayer. Dependency claims of separated or divorced parents are resolved in favor of the custodial parent. In some cases, previously determined court decrees or a written declaration by the custodial parent may release the claim to the non-custodial parent.
Dependent-related tax benefits reduce taxes in various ways. Exemptions lessen tax burdens by lowering taxable income. Filing statuses do so by reducing taxable income and tax rate. Credits can provide the most significant tax reduction because they directly cut taxes owed and, if the credit is refundable, refund any excess.