Tax time can be confusing for your clients, especially when it comes to figuring out who they can claim as a dependent. Whether your clients are welcoming a new child into the family, bringing an older child back home, or have simply accepted financial responsibility for a relative or friend, you can help make sure their tax filings are adjusted accordingly. Here is what you need to know to pass on to your clients:
Types of Dependents for Tax Purposes
Tax law and IRS regulations have established two primary categories of dependents who can be claimed on your tax return: qualifying children and qualifying relatives. Both categories are claimed identically on your tax return, but each has different rules for who can qualify.
The standard dependent exemption of $4,000 for tax year 2015 is the same for both types of dependents.
While the category of qualifying children is self-explanatory, the category of qualifying relatives is a bit less obvious. Notably, “relative” is used in a legal context here and covers both blood relatives and dependents to whom you aren’t actually related in the traditional sense, such as the brother of a boyfriend or girlfriend, or even unrelated family friends who live with you.
For both categories, claiming someone as a dependent amounts to a legal assertion that you were the primary source of their financial support throughout the year. Doing so allows you to claim an exemption on your own income tax return.
In both cases, a dependent can only be claimed on one person’s tax return. If more than one person provides financial support for that dependent, you’ll need to decide between yourselves which person gets to claim the exemption. If there is a disagreement, the child is treated as the qualifying child of the parent with whom the child resided for the longest time during the year. If there is no parent, the child is treated as the qualifying child of the taxpayer with the highest adjusted gross income (AGI) for the year.
Understanding Qualifying Children Dependents for Taxes
If you plan to claim somebody as a qualifying child dependent, that person must:
- Be your son, daughter, sister, brother or any variation of the same (such as a step-child, foster child or half-sister), or a descendant of any of them.
- Be younger than you, or younger than the oldest person in your marriage if you’re filing a joint return.
- Be younger than 19 at the end of the tax year unless they’re a student, in which case they must be younger than 24 by the end of the year. A student must attend an educational institution for some part of five calendar months during the year on a full-time basis. Individuals who are legally disabled can qualify regardless of age.
- Have lived in your household for more than six months of the year.
- Have provided no more than half of their own financial support during the tax year.
- Not be filing a joint tax return with their spouse.
Understanding Qualifying Relative Dependents for Taxes
The qualifying relative category is a catch-all for any dependents who don’t meet the test to be claimed as a qualifying child. In order to be claimed as a qualifying relative dependent, that person must:
- Not be claimed as a qualifying child dependent by you or any other person filing a tax return.
- Have a gross income (before taxes) of less than $4,000 for the tax year.
- Have had more than 50 percent of his or her financial support provided by you during the tax year.
- Live with you throughout the year, unless the person is a relative in the traditional sense or meets one of the other special circumstances explained in the next section.
Special Circumstances for Claiming Qualifying Relative Dependents
Normally, a qualifying relative dependent must live with you during the year to be claimed as a dependent. However, that isn’t true when the qualifying relative is:
- A direct relative in the traditional sense, including children, siblings, parents or grandparents, along with any step-, half-, foster, in-law or an adopted variant of the same.
- Legally defined as “temporarily absent” from your home. This category includes students, service members, relatives in a nursing home or extended care facility, relatives who died during the year, or relatives who were legally declared missing during the year.
As long as a person meets all the qualifications for either category of dependent, you can claim a corresponding exemption on your tax return.
Two final notes: Make sure that your dependent does not claim an exemption for himself/herself and make sure the Social Security Number (SSN) of each dependent is listed on the tax return. If the SSN is not listed, the exemption will be disallowed.