Claiming Dependents on Taxes: Ultimate Guide on Dependents

Hello, there!

Are you a US resident who is going to face tax season? Are you ready to earn some tax savings? If you’re supporting family or relatives, you might be able to claim them as dependents on your tax return—and that can mean more money in your pocket!

In the US, tax laws are set up to give a helping hand to those taking care of their loved ones. This ultimate guide will walk you through who qualifies as a dependent, how to claim them, and the sweet benefits that come with it. So, grab your paperwork, and let’s start claiming dependents on taxes!

What Is a Dependent?

A dependent is someone who depends on another person for money and support. This could be kids, family members, or even someone not related directly, like a partner you—the taxpayer—live with. The IRS sets specific rules for who qualifies as a dependent. The person must meet criteria regarding their relationship to you, income, and how much support you provide. Here’s one thing to strictly remember: Your spouse cannot be your dependent.

Claiming dependents on taxes can get you some mention-worthy benefits. It can lower your tax bill, as it may qualify you for certain deductions and credits. Your dependent usually can’t be anyone who’s married and filing jointly or who can be claimed as a dependent on someone else’s tax return. When you identify someone as your dependent on your tax returns, you inform the Internal Revenue Service that you followed the rules to claim them as your dependent.

Note: Individuals who meet the criteria to be claimed as dependents may have an obligation to file a separate tax return if they meet the necessary filing requirements or criteria.

Types of Dependents

In the US, there are primarily two types of dependents you can claim on your taxes:

1. Qualifying Child

A qualifying child can be your own child, stepchild, foster child, sibling, step-sibling, or a descendant of any of these individuals (like a grandchild), who:

• Lives with you for more than half of the year.
  
  
• Is under 19 years old (or under 24 if a full-time student) and younger than you (or your spouse if filing jointly).
  
  
• Doesn’t provide over half of their financial support during the tax year.

2. Qualifying Relative

The Qualifying Relative category is broader and includes not just relatives by blood or marriage but anyone who:

• Lives with you all year as a member of your household (or is related to you).
  
  
• Earns below a certain income threshold for the tax year.
  
  
• Relies on you for over half of their total financial support.

Remember, your spouse is never considered a dependent. Also, you cannot claim someone as a dependent if someone else has already claimed them. Learning about these types is important because they affect the tax credits and deductions you might be eligible for.

Dependent Example

Still, trying to figure out the concept of claiming dependent on taxes? Okay, we have an example for you.

Picture this: Anna is your 17-year-old daughter who lives with you full-time and doesn’t have a job. So, you provide for all her needs like housing, food, education, and healthcare. Since Anna is under 19, lives with you for the entire year, and relies on you for financial support, she qualifies as your “Qualifying Child” dependent. This means when you file your taxes, you can claim her as a dependent, which might qualify you for tax credits like the Child Tax Credit, potentially reducing the amount of tax you owe.

What about now? We hope you are quite clear after the precise example given above. So, let’s move on to the next question: How does dependency actually work? Or more precisely: who can I claim as a dependent?

Who Can I Claim as a Dependent?

In the US, you can claim someone as a dependent on your taxes (as of 2023) if they are:

• Someone who lived with you during the entire tax year of 2023.
  
  
• Your child, which includes your biological, adopted, or foster child, stepchild, or a descendent of any of them, such as a grandchild.
  
  
• Someone for whom you provided any financial support during 2023, covering more than half of their total living expenses.

Make sure they meet the specific requirements set by the IRS, including relationship, age, residency, and income criteria, to qualify as a dependent.

When you claim a dependent, you can often qualify for various tax benefits, such as the Child Tax Credit, the Earned Income Tax Credit, or the Credit for Other Dependents. Each dependent can only be claimed on one tax return per year, so if multiple people could claim the same person, they’d need to figure out who gets to do it. It’s all about confirming to the IRS that you’re financially responsible for someone else, and in turn, the government offers you tax relief to help out.

IRS Dependent Rules: Who Can’t Be My Dependent?

As you are going through our comprehensive guide on “claiming dependents on taxes,” we assume that you already have a precise picture of who you can claim as your dependents. Now, let’s talk about who you can’t claim.

You’re not allowed to claim someone as a dependent if:

• Someone else can claim you or your spouse as a dependent.
  
  
• You can’t claim a married person who files a joint tax return unless it’s solely for tax refund purposes.
  
  
• The person you are claiming has to be a citizen or resident of the United States or a resident of Canada or Mexico.
  
  
• The person you’re claiming must fit the criteria of being your qualifying child or qualifying relative.

To learn about qualifying children or qualifying relative criteria, keep reading through eligibility criteria to specific tests for verified dependents.

IRS Dependent Eligibility

The IRS defines specific criteria or rules for someone to be eligible as a dependent on a US tax return, and these rules apply slightly differently to U.S. residents and non-residents. Here, we have determined the two types of dependent criteria for you to comprehend.

For US Residents

The IRS-dependent eligibility requirements for US residents are given below.

Qualifying Child

The eligibility criteria for a qualifying child are as follows:

• The child must be closely related to you, like your own child, sibling, or grandchild, and this includes adopted and foster children.
  
  
• They should be younger than 19 by year’s end, or under 24 if a student, and they can’t be older than you.
  
  
• The child needs to have lived with you for over half the year.
  
  
• They can’t have paid for more than half of their own expenses during the year.
  
  
• They shouldn’t file a joint tax return unless it’s just to get a tax refund.
  
  
• If two people could claim the child, only one could actually claim them, based on IRS guidelines.

Qualifying Relative

The eligibility criteria for a qualifying relative are as follows:

• They can’t be anyone’s qualifying child.
  
  
• They must be related to you or have lived with you the entire year without breaking any local laws.
  
  
• Their yearly gross income must be less than $4,300.
  
  
• You must contribute more than half of their annual financial support.

These rules ensure that the right people get the appropriate tax benefits and prevent any overlap in claims.

For Non-Residents

The non-resident dependents must meet the same requirements as residents. However, there are some additional eligibility criteria for them.

The additional criteria include:

• The dependent must have an ITIN or SSN.
  
  
• Non-resident alien dependents must pass the “substantial presence test” or be from Canada, Mexico, South Korea, or a dependent of certain Indian nationals on a student visa.

For both residents and non-residents, dependents generally must be U.S. citizens, U.S. nationals, or resident aliens. There are also special rules for adopted children, kidnapped children, and children of divorced or separated parents.

Note: Tax laws are complex and can change, so it’s wise to consult the latest IRS guidelines or a tax professional, especially when dealing with non-resident issues.

What Tests Must Be Passed by All Dependents?

A dependent may be a qualifying relative or a qualifying child. Each type of dependent has different rules, but some requirements are the same for both. To check if someone can be claimed as a dependent, start with the rules that apply to both “qualifying child” and “qualifying relative” dependents.

The tests are as follows:

Dependent Taxpayer Test

If someone else can claim a person (or their spouse) as a dependent on their tax return, that person cannot claim anyone else as a dependent on their own tax form. The tax form’s first section asks, “Can anyone else claim you or your spouse as a dependent?” If the answer is yes, the individual cannot claim another person as a dependent.

It’s important to ask probing questions during interviews because some individuals, like students, might not be certain about the answer. If a person isn’t required to file a tax return or only files for a refund of estimated or withheld taxes, they’re not considered a dependent for someone else and should answer “no” to the question about being claimed as a dependent.

Joint Return Test

If a married person files taxes together with their spouse, they usually can’t be claimed as a dependent. But there’s an exception if they file jointly just to get back income tax withheld or estimated tax paid.

For more clarification, let’s use an example here:

Mireya got married in November during the tax year and didn’t earn any money. Her husband earned $30,000 and needed to file taxes. Even though Mireya’s father supported her and covered the wedding expenses, he can’t claim her as a dependent because she’s filing a joint tax return with her husband.

Citizenship or Resident Test

A person must be a U.S. citizen, resident alien, U.S. national, or a resident of Canada or Mexico to qualify as a dependent.

• If a U.S. citizen or national adopts a child who isn’t a U.S. citizen or resident, but the child lives with the taxpayer all year and meets other dependency criteria, they can be claimed as a dependent. The same applies if the child was legally placed with the taxpayer for adoption.
  
  
• Foreign exchange students usually aren’t U.S. residents and don’t meet citizenship or residency requirements; therefore, they cannot be claimed as dependents.

What Are the Five Tests for a Qualifying Child?

Now about the qualifying child’s test.
The tests are to check if someone is a dependent and to see if they meet the rules for being a qualifying child. If those rules aren’t met, then check if they meet the rules for being a qualifying relative. Remember, a person needs to meet either the qualifying child rules or the qualifying relative rules to be considered a dependent.

There’s a misconception among people that there are five tests for a qualifying child. Wrong. There are only four. The last one is kind of an obligatory rule. The tests are:

1. Relationship

To pass the relationship test, the following conditions should be met:

• The child needs to be the taxpayer’s son, daughter, stepchild, foster child (placed by an authorized agency), or a descendant (like a grandchild) of any of these.
  
  
• The child can also be the taxpayer’s brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant (like a niece or nephew) of any of these.

If a child is legally adopted, they are considered the same as a natural child in the relationships mentioned earlier. For instance, an adopted brother or sister is seen as a brother or sister of the taxpayer. An adopted child is a child lawfully placed with a person for legal adoption.

2. Age

In this test, the child must be either:

• Younger than 19 at the end of the tax year and younger than the taxpayer (or the taxpayer’s spouse if filing together), or
  
  
• A full-time student under 24 at the end of the year and younger than the taxpayer (or spouse if filing together).
  • To be a student, they need to attend the number of hours or courses the school considers full-time for at least five months of the year.
    
    
• Any age if they are permanently and completely unable to work due to a long-lasting physical or mental condition:
  • They can’t do any significant work because of their condition.
  • A doctor has confirmed the condition lasts or is expected to last continuously for at least a year or may lead to death.

Note: Attending a training course while working, studying through the mail, or enrolling in online-only schools doesn’t count the child as a student for this purpose.

3. Residency

The residency test demands the following:

• The child needs to have lived with the taxpayer for more than half of the year.
  
  
• The taxpayer’s home can be any place they regularly stay; it doesn’t have to be a typical house. For instance, if a child lived with the taxpayer for more than half the year in one or more homeless shelters, it still counts as meeting the residency test.

Exceptions to the Residency Test

There are some exceptions to the residency test for a qualifying child. Read on to learn that.

• The child is considered to have lived with the taxpayer even when one of them is away temporarily due to reasons like sickness, education, work, vacation, military service, or if the child is in care for a disability, or if either the child or the taxpayer is in prison.
  
  
• If a child is born or dies during the year, they are counted as living with the taxpayer for more than half of the year if the taxpayer’s home was the child’s main home for most of the time they were alive during that year.
  
  
• Taxpayers can claim a child as a dependent if the child was born, died, or was kidnapped during the year, as long as they meet the other conditions required for dependency.
  
  
• A stillborn child cannot be claimed as a dependent. In most situations, a child is seen as the qualifying child of the parent they live with primarily. However, different rules apply to divorced, separated, or parents living apart, which we’ll cover later.

Note: If a child was born and passed away within the same year, you don’t need a Social Security Number (SSN) for them. However, you won’t be able to electronically file your tax return in this situation. Instead, you’ll need to mail your tax return.

4. Support

To pass this test, the child can’t have covered over half of their own expenses during the tax year. This rule differs from the support criteria for a qualifying relative. Personal funds aren’t considered support unless they’re actually spent to provide for the child. If uncertain about whether the child provided more than half of their support, consult with an expert.

Government assistance like welfare, food stamps, or housing typically counts as support provided by the state. There’s a proposed rule stating that if a person uses government payments to support others, part of those payments is considered support provided by that person. For instance, if a mother gets Temporary Assistance for Needy Families (TANF) and uses it to support her kids, the regulations view the mother as the provider of that support.

However, if a child receives Social Security benefits and uses them for their own support, those benefits are seen as provided by the child. Also, scholarships received by a student-child are not counted when determining whether the child provided more than half of their support.

5. Joint Return

This one is not actually a test; it’s more of a restriction, you can say.
For a child to be a qualifying dependent for taxes, they shouldn’t file a tax return with someone else—a joint return—except if they’re filing just to get money back as a refund.

Can the Child Be a Qualifying Child for More Than One Person?

Even though a child might qualify for different people, only one taxpayer can claim certain tax benefits for that child. This includes things like being a dependent, getting child tax credits, and other financial benefits. If two taxpayers try to claim the same child for these benefits, only one can receive them—they can’t split them.

To decide who gets to claim the child, these rules apply:

• If the child has only one parent among the taxpayers, then that parent is considered the child’s qualifying parent.
  
  
• If parents are together and can claim the child, they do so jointly.
  
  
• If parents don’t file taxes together but both claim the child, the IRS will consider the child as the qualifying child of the parent they lived with for most of the year. If the child lived equally with both parents, the IRS will see the child as the qualifying child of the parent who earned more money (had a higher Adjusted Gross Income) during the tax year.
  
  
• If neither parent can claim the child as a qualifying child, the child is considered the qualifying child of the person who earned the most money (had the highest AGI) for the tax year and who meets the necessary requirements.
  
  
• If a parent could claim the child but doesn’t, the person with the highest income might claim if their income is higher than the parent’s combined income divided equally between them.

These rules help decide who gets to claim the child for tax benefits when multiple people could qualify. If the child is claimed on more than one tax return, the IRS uses these rules to decide who gets the benefits.

Note: If the parents aren’t married and are not filing taxes together, they can discuss and decide who gets to claim the child as a dependent. This happens when they live together as a family.

Remember, if a taxpayer tries to file their taxes online and finds out someone else has already claimed the dependent they were trying to claim, the IRS uses the tie-breaker rules. If the taxpayer is the one who should claim the dependent according to these rules, they have to file a paper return instead.

What Are the Tests for an IRS-Qualifying Relative?

People who don’t fit the criteria to be a qualifying child might still meet different criteria to be considered a qualifying relative. Besides the tests for being a dependent, filing a joint return, and being a citizen or resident, there are four more tests to qualify as a relative. These tests include:

1. Not a Qualifying Child Test

If a child qualifies as a taxpayer’s “qualifying child” or as the qualifying child for someone else, they can’t be considered that person’s (taxpayer’s) “qualifying relative.”

But there’s an exception to this rule. A child might be considered a dependent as a “qualifying relative,” even if they’re someone else’s “qualifying child.” This exception applies when the child’s parent or the person they qualify for isn’t obligated to file a tax return or only files to get back withheld taxes or estimated tax payments.

Member of Household or Relationship Test

To pass the member of household or relationship test, the person must either:

• Live in the taxpayer’s home for the entire year.
  
  
• Have any of the below-mentioned relationships with the taxpayer:
  • Child, stepchild, foster child, or their descendant.
  • Brother, sister, stepbrother, stepsister, or half-sibling.
  • Parent, grandparent, or other direct ancestor (except a foster parent).
  • Stepparent.
  • Nephew, niece, or the child of the taxpayer’s sibling.
  • The child of the taxpayer’s half-sibling.
  • Uncle, aunt, or sibling of the taxpayer’s parent.
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

An adopted child is considered the same as a natural child in these relationships. For instance, an adopted brother or sister is like a biological sibling. An adopted child includes a child who was legally placed for adoption.

These relationships established through marriage aren’t ended by death or divorce.

An unrelated person who lived with the taxpayer for the whole year can also satisfy the household member or relationship requirement. But if the relationship goes against local laws (for instance, if cohabitation is prohibited in the state), this test isn’t met, even if other criteria are fulfilled.

Remember

There are some things to remember regarding the “member of household or relationship test.” Those are the following:

There are some things to remember regarding the “member of household or relationship test.” Those are the following:

• Even when someone or the taxpayer temporarily leaves due to reasons like sickness, school, work, holiday, military duty, or nursing home stay, they can still be counted as part of the household.
  
  
• Cousins can qualify as relatives for tax purposes only if they live with the taxpayer throughout the entire year.
  
  
• Qualifying relatives don’t have to be related; as long as they lived with the taxpayer for the full year, they can be considered.
  
  
• The taxpayer cannot claim a household employee, like a housekeeper, as a dependent.

3. Gross Income Test

To pass the gross income test, the person you’re claiming as a dependent should have earned less than a certain amount during the year. To know the exact threshold amount for the current year, check the IRS’s volunteer resource guide.

Gross income means all the money, things, or work someone gets that isn’t tax-free. But this rule about income doesn’t affect the kids you’re claiming; only other relatives you might be claiming. Also, for someone who’s completely disabled, their income from a special workplace doesn’t count in this calculation.

4. Support Test

To pass this test, you need to have paid for more than half of the person’s expenses for the year. This is different from the rule for a qualifying child, where the question is whether the child paid for more than half of their own costs.

To figure out if you meet this requirement, look at everything you spent on them and compare it to the total amount of support they got from everywhere else. This includes their income (even if it’s not taxed) and any money they borrowed.

Multiple Support Agreements (Form 2120)

Sometimes, no single person pays for more than half of someone’s living costs. When this happens and two or more people could have claimed them as dependents if they had paid for most of their support, they can work together to cover more than half of the dependent’s expenses. If each of these people provides at least 10% of the support and meets the other rules for a qualifying relative, they can agree to let just one of them claim the dependent on their taxes for the benefits.

Here’s what they need to do:

• The person who will claim the dependent has to file a special form with their tax return, called Form 2120, Multiple Support Declaration, or a similar statement.
  
  
• The others who helped support the person and gave more than 10% must write and sign a statement saying they won’t claim the dependent that year. The person claiming the dependent should keep a copy of this statement. The specific things that need to be in this statement are listed in the instructions for Form 2120.

Dependent Tax Considerations: What Is a Dependent Tax?

In the United States, a dependent tax isn’t a separate tax but rather a term that refers to specific deductions or credits a taxpayer can claim on their tax return for supporting dependents. When you support someone financially, like a child or a relative, you may be able to claim them as a dependent, which can reduce your taxable income or increase your refund.

This comes in the form of exemption deductions, which lower the amount of your income that is subject to tax, and various tax credits like the Child Tax Credit, which can directly reduce the tax you owe dollar-for-dollar.

In a nutshell, claiming dependents on taxes can get you several tax benefits on your federal income tax return.

Note: Always ensure you meet the IRS eligibility criteria for claiming someone as a dependent to qualify for these benefits.

Tax Benefits of Claiming Dependents

Claiming dependents on taxes comes with a variety of potential benefits that can lower your tax bill. Read on and find out the benefits that could be really beneficial for you.

Tax Deduction for Dependent

In the U.S., if you have a dependent, you may be eligible for certain tax deductions and credits that can ease your tax burden. Let’s take a brief look at the various dependent tax credits and deductions available for those claiming dependents on taxes:

• Personal Exemption: Before 2018, taxpayers could claim a personal exemption for themselves, their spouse, and each eligible dependent.
  
  
• Child Tax Credit: For those with qualifying children under the age of 17, the Child Tax Credit provides a credit of up to $2,000 per child, with a refundable portion known as the Additional Child Tax Credit.
  
  
• Credit for Other Dependents: If you support dependents other than qualifying children, such as older children or aging parents, you might be eligible for a non-refundable credit of up to $500 per dependent.
  
  
• Earned Income Tax Credit (EITC): Lower-income taxpayers with dependents might qualify for the EITC, which can result in a significant reduction in tax liability or even a refund.
  
  
• Child and Dependent Care Credit: If you paid for child care or dependent care while you worked or looked for work, you might qualify for a credit that covers a percentage of these costs.
  
  
• Education Credits: There are also credits like the American Opportunity Credit and Lifetime Learning Credit for those paying for a dependent’s education expenses.
  
  
• Medical and Dental Expenses: You can also deduct certain out-of-pocket medical and dental expenses for your dependents.

If you want a clearer picture of the above-mentioned deductions and credits available for dependent claimants, go through the explained definitions of some given below.

What Is a Personal Exemption?

The personal exemption amount was calculated by adding up all eligible family members and multiplying this number by a set dollar value determined by the taxpayer’s filing status. If you were filing alone, you’d get one exemption for yourself; if you were the head of the household or filed jointly with your spouse, you’d get to claim an exemption for each person in your family who qualified.

Even married folks filing separately could claim an exemption for their spouse, provided the spouse didn’t earn any money that year and no one else claimed them as a dependent. To claim someone as a dependent, they had to meet the criteria of being either your qualifying child or a qualifying relative.

However, it’s important to note that, as of the Tax Cuts and Jobs Act of 2017, personal exemptions are no longer applicable for tax years 2018 through 2025.

Earned Income Tax Credit (EITC): Who Qualifies for It?

The Earned Income Tax Credit (EITC) is a tax benefit for working people with low to moderate income, especially those with children, in the United States. To qualify for EITC, you must meet certain requirements regarding income and filing status. Your earnings must fall within specific limits, which vary depending on your filing status and the number of children you have.
Generally, the less you earn, the larger the EITC. Also, you must have a valid Social Security Number (SSN), be a U.S. citizen or resident alien all year, and not file any foreign income forms like Form 2555. If you don’t have children, you can still qualify if you’re between the ages of 25 and 64.

The EITC is designed to reduce the tax burden on eligible taxpayers and is refundable, which means it can reduce your tax bill or increase your refund.

How Much Is the Child Tax Credit Worth?

The Child Tax Credit or CTC can be worth up to $2,000 per qualifying child who passes the IRS eligibility tests. Part of this credit, up to $1,600, maybe refundable with the Additional Child Tax Credit, meaning you could get a refund even if you don’t owe any tax. In 2022, this amounted to $1,500, and in 2024, it will reach $1,700.

However, the exact amount can vary based on income level, the number of children, and other factors. There have been temporary increases and changes to this credit in recent years, so it’s always best to check the current tax year’s IRS guidelines or consult with a tax professional for the most up-to-date information.

Which Parent Should Claim a Child on Taxes to Get More Money?

When parents are deciding which one of them should claim their child as a dependent on their taxes to get more money, there are a few factors to consider:

• Higher Income: Generally, the parent with the higher income benefits more from claiming the child. This is because they are likely to be in a higher tax bracket, and the exemption will reduce their taxable income more significantly.
  
  
• Tax Credits: Certain tax credits, like the Child Tax Credit or the Earned Income Tax Credit, are more beneficial for lower-income parents. These credits are sometimes refundable, meaning they can get money back even if they don’t owe any taxes.
  
  
• Custodial Parent: The IRS typically gives the right to claim the child to the custodial parent, the one with whom the child lived for a greater number of nights during the year.
  
  
• Written Agreement: If there is a divorce decree or written agreement, it might specify who gets to claim the child.
  
  
• Multiple Children: If there are multiple children, sometimes splitting the exemptions—one parent claims one child, the other claims another—can result in more combined benefits.

Now, after careful consideration, an ultimate decision should be made. Otherwise, you can’t explore the full potentiality of the child tax credit and other advantages related to claiming dependents on taxes.

Credit for Other Dependents

The Credit for Other Dependents is a tax benefit in the US designed for taxpayers with dependents, but those dependents don’t qualify for the Child Tax Credit. This might include older children who are beyond the age limit for the Child Tax Credit, other relatives like aging parents you—the taxpayer—support, or even non-relatives who live with you and are part of your household.

This credit is non-refundable, meaning it can reduce the amount of tax you owe but won’t result in a refund by itself. This credit helps ease the financial responsibility of caring for dependents who are not your qualifying children but still rely on you for support.

Child and Dependent Care Credit

The Child and Dependent Care Credit in the U.S. is a tax break for parents and guardians who pay for childcare while they work or look for work. This credit can apply to expenses for the care of children under 13, a disabled spouse, or a dependent of any age who is incapable of self-care.
The child and dependent care credit amount depends on the taxpayer’s income and the total care expenses. It’s designed to ease the financial burden of working caregivers by reducing the amount of tax they owe, and in some cases, it might even lead to a refund.

What Is Head of Household Status?

The “Head of Household” filing status is usually for parents or adults who take care of a home where a qualifying dependent lives. If you qualify, you may get a bigger standard deduction and pay lower taxes compared to single people or those married but filing taxes separately.

Note: To be seen as a Head of Household, you must file your individual tax return—you should be single/divorced or legally separated/Married without living together for the last six months of the current or past tax year—not be claimed on someone else’s tax form, and be able to claim a dependent on your own tax form.

Here is the form: 886-H-HOH

ITIN for Dependents

When someone is required to have a U.S. taxpayer identification number but does not have or is not eligible to obtain a Social Security Number (SSN), the IRS will issue them an Individual Taxpayer Identification Number, or ITIN.

Dependents who are not eligible for an SSN, such as non-resident or resident aliens, their spouses, and their dependents, can apply for an ITIN. This allows them to be claimed on a tax return, ensuring the primary taxpayer can access available tax benefits. Taxpayers with foreign dependents need to obtain an ITIN for each dependent to comply with tax laws and possibly reduce their tax liabilities. The process involves completing Form W-7 and providing specific identification documents for each dependent.

Common Mistakes and Misconceptions of Claiming Dependents on Taxes

There are a lot of mistakes and misconceptions about claiming dependents on taxes. For you, we have provided a short overview here:

Myths and Mistakes about Claiming Dependents

Assuming Dependents Must Be Children: While many dependents are children, they can also be other relatives or even non-relatives in some cases.

• Overlooking the Income Limit for Qualifying Relatives: Some people forget that qualifying relatives can’t earn over a certain amount of income to be claimed as dependents.
  
  
• Ignoring Residency and Support Tests: There’s a misconception that simply being related allows you to claim someone as a dependent. However, they must also meet residency and financial support tests.
  
  
• Claiming a Non-Qualifying Child: Sometimes, taxpayers claim a child who doesn’t meet the age, residency, or relationship requirements set by the IRS.
  
  
• Claiming a Dependent Multiple Times: Sometimes, more than one taxpayer tries to claim the same person as a dependent, like when divorced parents both try to claim a child.
  
  
• Misconception about Personal Exemptions: Some taxpayers think dependents can claim their own personal exemption, but this is not the case.
  
  
• Forgetting to Consider College Students: Parents often mistakenly believe that if their child attends college and isn’t living at home, they can’t claim them. However, if other support and age criteria are met, they often still can.
  
  
• Misunderstanding the Impact of Divorce: After a divorce, both parents may try to claim the same child. The IRS has specific rules for these situations, generally favoring the custodial parent unless there’s an agreement otherwise.
  
  
• Non-Relative Dependents: There’s a belief that you can’t claim non-relatives as dependents, but if they meet certain criteria like living with you all year and you provide more than half of their support, they might qualify.
  
  
• Dependent Filing Their Own Return: There’s a belief that if a dependent files their own tax return, they can’t be claimed by someone else. However, as long as they don’t claim a personal exemption for themselves, they may still qualify as someone else’s dependent.

It’s important to understand the rules to avoid these errors and stay compliant; otherwise, it can lead to delays in processing your tax return or even an audit.

Avoiding IRS Red Flags and Audits

To avoid catching the attention of the IRS and potentially being audited, it’s essential to file your taxes accurately and on time in the US. The following are some important things to bear in mind:

• Report All Income: Don’t leave out any earnings. The IRS receives copies of all your 1099s and W-2 forms, and discrepancies will stand out.
  
  
• Be Accurate with Deductions and Credits: Only claim deductions and credits you’re entitled to, and make sure you have documentation to back them up.
  
  
• Be Careful with High Deductions: Large deductions that are disproportionate to your income can be a red flag, especially if they’re for charitable donations or home office expenses.
  
  
• File On Time: Late filings can raise suspicion, so try to meet all tax deadlines, or file for an extension if necessary.
  
  
• Avoid Round Numbers: When making deductions, use precise amounts. Rounded numbers may suggest you’re estimating rather than reporting actual figures.
  
  
• Report International Assets: If you have assets in foreign accounts, you must report them. The IRS is very interested in overseas activities.

By following the rules and keeping detailed records, you can minimize the chance of IRS scrutiny. If you do get audited, having your documentation in order will help resolve things quickly.

What if My Dependent is Involved in a Crime? Do I Have Liabilities?

If your dependent (a qualifying child or qualifying relative) is involved in a crime, whether or not you have legal liabilities depends on various factors. Take a look below to learn about those:

• Direct Involvement: Generally, you’re not legally responsible for a crime your dependent commits unless you were directly involved in the crime or encouraged it.
  
  
• Parental Responsibility: For parents, some states have laws that might hold you responsible for certain acts committed by your minor children, like paying for damages caused by vandalism. However, these are usually civil or parental liabilities, not criminal.
  
  
• Financial Responsibility: In terms of taxes and dependent-related tax credits, your dependent’s criminal involvement does not automatically affect your tax situation. However, if their actions result in significant legal expenses or financial changes, this might indirectly impact your tax filings or eligibility for certain credits.
  
  
• Dependency Status: If a dependent is incarcerated for a long period, they might no longer meet the criteria for you to claim them as a dependent for tax purposes.
  
  
• Legal Advice: If your dependent is involved in a serious crime, it’s wise to consult a legal professional for advice specific to your situation. They can guide any potential liabilities and how to handle them.

Remember, each situation is unique, and legal advice from an expert or qualified attorney is essential in such scenarios.

FAQs on US Dependents

Q1. Is a Spouse a Dependent?

Answer: A spouse is not considered a dependent in the U.S. tax system. When you file a joint tax return, you and your spouse are treated as equal partners in the tax filing. However, if you choose to file separately, you cannot claim your spouse as a dependent.

The tax benefits that might be associated with having a dependent are instead integrated into the joint filing status, which typically offers a larger standard deduction and potential eligibility for other tax credits. If your spouse has no income or very low income, you may benefit more from filing jointly, but you don’t claim them as a dependent in the same way you would a child or other qualifying relative.

Q2. What Is the Age Limit for a Child to Be Considered a Qualifying Dependent?

Answer: To claim your child as a dependent on your taxes, they need to pass either the qualifying child test or the qualifying relative test.

For the qualifying child test, your child should be younger than you or your spouse (if filing jointly). They should be under 19 years old, or if they’re a “student,” under 24 years old by the end of the year. However, there’s no age limit if your child is “permanently and totally disabled” or passes the qualifying relative test.

Apart from passing either of these tests, you can claim someone as a dependent only if they meet three additional criteria:

1. Dependent taxpayer test.
2. Citizen or resident test.
3. Joint return test.

Q3. Can I Claim a Dependent Care Credit for My Elderly Parent?

Answer: Yes, if you pay for the care of an elderly parent so that you can work or look for work, and they qualify as your dependent, you may be able to claim the Dependent Care Credit.

Q4. Can I Claim a Child as a Dependent If They Live with Me for Only Part of the Year?

Answer: Yes, you can claim a child as a dependent if they lived with you for more than half the year. The IRS requires the child to have lived with you for at least six months, but there are exceptions for temporary absences, such as school, vacation, or medical care.

Q5. What Is an ITIN, and When Do I Need One for My Dependents?

Answer: An ITIN, or Individual Taxpayer Identification Number, is needed for dependents who don’t have a Social Security Number, typically non-citizen and non-resident dependents. If your dependent doesn’t have an SSN and is unable to obtain one, you must apply for an ITIN so that the IRS can process taxes.

For more FAQs please go to our blog.

Wrapping Up

That’s it. If you still have queries, feel free to book a premium consultation with our lead consultant. Our consultant is a veteran international legal structure expert and an IRS Certified Acceptance Agent (CAA) representing Business Globalizer. We can issue an ITIN without any third-party hassle. And we can give you any legal issue’s solution regarding USA company formation and operation.

Have a good day!