The IRS knows that some taxpayers provide their children and relatives with financial support. That’s why the government offers folks with dependents the opportunity to reduce their tax burden. Being able to claim someone as a dependent may significantly lower your tax bill, especially if you qualify for a tax break like the Earned Income Tax Credit or the Child Tax Credit. And a financial advisor can help you take an extra step to align your tax strategy with your overall financial goals and your dependents.
Check out our income tax calculator.
Not sure whether you can claim a child or family member as a dependent? Here’s a breakdown of what the IRS has to say about the matter.
What Is a Tax Dependent?
A tax dependent is a child, spouse, family member, and even an unrelated friend who needs your financial support and lives with you.
Dependents can be claimed by a taxpayer as an exemption to reduce the amount of taxes that will have to be paid. The IRS calls this a dependency exemption, and each one will decrease the amount of income that you will owe taxes on.
Let’s take a look at some of the IRS rules that determine who can qualify as a dependent.
Who Is Considered a Tax Dependent?
The IRS uses marital status, other types of relationships, and how much support is provided in a tax year, among other factors, to determine whether a taxpayer can claim a dependent. In order for you to claim someone as a dependent, you need to have provided more than half of the person’s financial support for the year. It’s important to note, however, that not everyone you support qualifies as a dependent.
Here are two general rules for all dependents:
- You can claim a child or relative as a dependent as long as no one else can claim that person as a dependent. Generally, you cannot claim someone as a dependent if he or she is married and filing a joint tax return. But there are a couple of exceptions to that rule. You may be able to claim a joint filer as a dependent if he or she only filed jointly in order to get a refund of estimated taxes that were paid or taxes that were withheld.
- Dependents must be a U.S. citizen, a resident alien, a U.S. national, or a resident of Mexico or Canada.
Related Article: How Many Allowances Should You Claim?
What It Means to Have a Qualifying Child
The IRS says you can claim children as dependents as long as they meet the following requirements:
- The child must be related to you. For example, your son or daughter, stepson or stepdaughter, brother or sister, stepbrother or stepsister, nephew or niece, or grandchild can be considered a dependent.
- In most cases, the child you’re trying to claim must live with you for more than six months out of the year. But there are exceptions for children who are away from home because they’re sick, attending college, serving in the military, starting a business or taking a vacation.
- The child you’re trying to claim has to meet an age test as well. Children can only be claimed as dependents if they are under the age of 19. However, you can claim full-time students as dependents until they turn 24.
- Children who are permanently or completely disabled can be claimed as dependents for their entire lives if they meet the other criteria for qualifying children.
What It Means to Have a Qualifying Relative
A qualifying relative is a member of your family or a friend who is designated by the IRS as a tax dependent. This means that a taxpayer must provide financial support for that relative or friend during most of the year.
Here are some general rules and exceptions for qualifying relatives:
- If you have a relative who relies on you for most of their financial assistance – be it a parent or great aunt twice removed – you can claim them as dependents as long as no one else claims them. But keep in mind that if your relative is considered a qualifying child (even if no one actually claims them), you cannot claim them as a dependent on your tax return.
- In order for you to claim a relative as a dependent, that family member cannot have a gross annual income above $4,300 in 2021. Gross income includes all earned and unearned income.
- The relative who you want to claim as a dependent must also live with you for the entire year. There are exceptions for mothers, fathers, nieces, nephews and other relatives.
- If someone died during the year, you can claim that relative as a dependent for the whole year as long as they lived with you up until their death.
For a full list of relatives who you can claim even if they don’t live with you, you’ll need to review IRS Publication 501.
Related Article: How to File Taxes
Before you file taxes, you’ll need to find your dependents’ Social Security numbers. That way, you can include that information on your tax return. You cannot claim someone as a dependent if you don’t have access to a Social Security number, individual taxpayer identification number (ITIN) or an adoption taxpayer identification number (ATIN) for that person.
Tax Planning Tips
- Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A financial advisor can help keep your taxes low by harvesting your tax losses, which means that you can use your investment losses to lower taxes on capital gains.
- Use SmartAsset’s income tax calculators to help you figure out your federal, state, and local taxes. And if your taxes are complicated, it’s a good idea to work with a professional tax preparer or a tax prep program.
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