|Qualifying Child||Qualifying Relative|
Taxpayers who have children have an opportunity to qualify for valuable tax credits that may reduce their tax liability or eliminate it completely. Having Dependents can also affect a taxpayer’s filing status and tax rate.
According to the tax code, the term “dependent” means a qualifying child or a qualifying relative. A dependent is a person other than the taxpayer or spouse who entitles the taxpayer to claim a dependency exemption.
Personal and Dependency Exemptions
An exemption is a dollar amount allowed by law as a reduction of income that would otherwise be taxed. Taxpayers are allowed two types of exemptions: personal and dependency. Exemptions are worth $4,050 each in 2016 and 2017.
Personal exemptions are granted to taxpayers for themselves; almost every taxpayer and spouse are each entitled to one personal exemption. Children who may be claimed as dependents on their parents’ tax returns are not allowed to claim a personal exemption for themselves on their own tax returns.
For an individual to be a qualifying child of a taxpayer, he or she must meet five tests:
Relationship. The child must be the taxpayer’s son, daughter, stepson, stepdaughter, eligible foster child, legally adopted child, brother, sister, stepbrother, stepsister, or a descendent of any of these individuals.
Age Test. In general, the child must be under age 19 and younger than the taxpayer (or spouse if filing jointly), or under age 24 and younger than the taxpayer (or spouse if filing jointly) if a full-time student. If the individual is permanently and totally disabled, there is no age limit.
Residency Test. The child must live with the taxpayer in the United States for more than half of the year. An individual who was born or died during the year is considered to have met this test regardless of how long he or she lived with the taxpayer, provided he or she lived with the taxpayer the entire time he or she was alive during the year. There are also exceptions for children who were temporarily absent from the home, children of divorced or separated parents, and kidnapped children.
Support Test. The child must not have provided over half of his or her own support for the year.
Joint Return Test. The child is not filing a joint return for the year (unless that joint return is filed only to claim a refund of income tax withheld or estimated tax paid).
For an individual to be a qualifying relative of a taxpayer, he or she must meet four tests:
Not a Qualifying Child. A qualifying relative may not be the qualifying child of the taxpayer or any other taxpayer.
Member of Household or Relationship Test. The individual must either live with the taxpayer all year as a member of the taxpayer’s household (however, an individual does not meet the member of household test if the relationship between the taxpayer and the individual violates local law) or be related to the taxpayer in one of the following ways:
- A son, daughter, stepson, stepdaughter, eligible foster child, legally adopted child, or a descendant of any of these individuals.
- A brother, sister, half-brother, half-sister, stepbrother, or stepsister.
- The father or mother, or an ancestor of either.
- A stepfather or stepmother.
- A son or daughter of a brother or sister of the taxpayer.
- A brother or sister of the father or mother of the taxpayer.
- A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
Gross Income Test. The individual’s gross income must be less than the exemption amount ($4,050 for 2016 and 2017) to satisfy the gross income test.
Support Test. The taxpayer must provide over one-half of the individual’s support to satisfy the support test.
- If an individual can be claimed as a dependent by another taxpayer, that individual cannot claim anyone else as a dependent for the year, even if the individual has a qualifying child or qualifying relative. In addition, if an individual files a joint return and his or her spouse can be claimed as a dependent by someone else, no dependents can be claimed on their joint return.
- Generally, an individual cannot be claimed as a dependent if that individual files a joint return. However, if the individual filed a joint return merely to claim a refund and no tax liability would exist for either spouse on separate returns, the joint return test does not apply.
- To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. However, if you are married filing jointly, the child must be younger than you or your spouse but does not have to be younger than both of you.
- To qualify as a student, your child must be, during some part of each of any 5 calendar months (The five calendar months do not have to be consecutive) of the year:
- A full time student at a school that has a regular teaching staff, course of study and a regularly enrolled student body at the school, or
- A student taking a full time, on-farm training course given by a school, or by a state, county, or local government agency.
- A school can be an elementary school, junior or senior high school, college, university, or technical trade, or mechanical school. However, an on-the-job training course, correspondence school, or school offering courses only through the internet does not count as school.
- A full time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.
- Students who work on “co-op” jobs in private industry as part of a school’s regular course of classroom and practical training are considered full time students.
- An individual cannot be claimed as a dependent unless that individual is a U.S. citizen or resident, U.S. national, or a resident of Canada or Mexico for some part of the year. A legally adopted child who is not a U.S. citizen or resident may be claimed as a dependent if all of the following apply:
- The child’s main home is the taxpayer’s home.
- The child was a member of the taxpayer’s household all year.
- The taxpayer is a U.S. citizen or U.S. national.
- You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative.
- If your child was born on December 31, you may claim them as a dependent and take the full exemption ($4,050 for each).
- Unites States means the 50 states and the District of Columbia. It does not include Puerto Rico or U.S. Possessions such as Guam.
- There is no age limit on claiming your child as a dependent if the child meets the qualifying relative test.
- An adopted child is always treated as your own child. It also includes a child lawfully placed with you for adoption.
- A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
- Your child is permanently and totally disabled if the child cannot engage in any substantial gainful activity because of a physical or mental condition and a doctor determines the condition has lasted or can be expected to last a year or lead to death.
- You cannot claim a dependency exemption for a stillborn child. Whether your child was born alive depends on state or local law.
- If your child was born and died in 2016, and you do not have an SSN for the child, you may attach a copy of the child’s birth certificate, death certificate, or hospital records instead. The document must show the child was born alive.
- A child’s own funds are not considered support unless they are actually spent for the child’s support.
- A child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as:
- Military service
- Your child is also considered to have lived with you during any required hospital stay following birth, as long as the child would have lived with you during that time but for the hospitalization.
- An absence is considered temporary if a person is placed in a nursing home for an indefinite period of time to receive constant medical care.
- Special test for a qualifying child of more than one person. It is possible that a child can be a qualifying child of more than one person. Because the child can only be claimed on one individual’s return, tiebreaker rules must be applied to determine which person is eligible to claim the child. (there is also an exception for divorced or separated parents) Under the tiebreaker rules only one person can claim the following child-related tax benefits.
- Dependency exemption.
- Child tax credit.
- Head of household filing status.
- Child and dependent care credit.
- Exclusion from income for dependent care benefits.
- Earned income tax credit.
- A qualifying relative may include certain unrelated persons.
- A spouse is never considered your dependent.
- Each person listed on a U.S. federal income tax return must have a valid Taxpayer Identification Number (TIN). The following are TINs:
- Social Security Number (SSN).
- Individual Taxpayer Identification Number (ITIN).
- Adoption Taxpayer Identification (ATIN).