Raising families can be expensive. That is why Congress and the IRS have made tax deductions and credits available to families to help keep money in their pocket at tax time. One of the biggest deductions available to families is the dependent deduction.
A dependent is a person who relies on another, especially a family member, for financial support. That means that if you support someone financially, even an out of work boyfriend living on your couch, you may get something back this tax season.
For 2012, this could be as much as $3,800 off your taxable income, per qualified dependent. In addition, claiming dependents helps you benefit from a number of dependent related tax benefits including the child tax credit worth up to $1,000, the child and dependent care credit, and the earned income tax credit worth up to $5,891.
Here is a quick reference guide to find out if the person you support is a qualified dependent, according to the IRS.
In order to claim a person as a dependent on your tax return (either a Qualifying Child or a Qualifying Relative), all of the following must be true:
- No one else can claim you as a dependent. Note, a spouse cannot be claimed as a dependent.
- The dependent is not married. In general, a married person cannot be claimed as a dependent if he or she files a joint tax return.
- The dependent is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.
In order for a dependent to be claimed as a “qualifying child” there are five tests that must be met:
- Relationship – The child can be a son, daughter, stepchild, foster child, a descendant, your brother, sister, half brother, half sister, stepbrother, stepsister, adopted child, or foster child.
- Age – Child must be under the age of 19 or age 24 if a full-time student or permanently and totally disabled.
- Residency – Child must have lived with you for more than half of the year unless there are special circumstances.
- Support – Child cannot provide more than half of his or her own support.
- Joint Return – A child cannot file a joint tax return for the year unless the tax return is filed to claim a tax refund.
In order for someone to be claimed as a “qualifying relative” four test need to be met:
- Not a qualifying child – If someone meets the test of a “qualifying child” they cannot be a “qualifying relative”.
- Member of household or relationship – Relatives that aren’t a member of the household may be claimed as “qualifying relatives” as long as the relatives meet all the other tests.
Many people are also supporting friends due to the changing dynamics of the economy. Unlike relatives, friends must live in the home the entire year to qualify as a dependent.
- Gross Income – “Qualifying relatives” must have income less than $3,800 for 2012. This amount is adjusted every year for inflation.
- Support – You must provide over half of a relative or friend’s total support for them to be claimed as a “qualifying relative”.