Definition, Types, and Tax Credits

What Is a Dependent?

A dependent is an individual who depends on another person for monetary assist and might embrace youngsters or different kinfolk. Having a dependent entitles a taxpayer to say a dependency exemption on their tax return so long as the dependent meets the qualifying definition based on the Inner Income Service (IRS).

A taxpayer who can reveal that they’ve a dependent additionally could possibly use this submitting standing to qualify for sure tax credit.

Exams within the Inner Income Code (IRC) set up a particular person’s eligibility to be a taxpayer’s dependent for the aim of dependency claims.

How Does Dependency Work?

A dependent could also be a qualifying little one or one other qualifying relative. Dependency standing is set by IRC assessments. To qualify for dependent standing, three assessments should be met for all dependents: the dependent taxpayer check, the joint return check, and the citizen or resident check.

Any one that could also be claimed as a dependent by one other taxpayer could not declare anybody as a depending on their very own tax return. Any one that filed a joint return (as a married particular person) can’t be claimed by anybody as a depending on their tax return except that dependent is submitting a joint return solely to say a refund of tax that was withheld or paid as estimated taxes. Lastly, to be claimed as a dependent, an individual should be a U.S. citizen, U.S. resident immigrant, U.S. nationwide, or a resident of Canada or Mexico.

In case you are married and submitting collectively, you and your partner can each declare dependents and share any tax advantages. Within the case of separate returns, whether or not you might be married or not, just one taxpayer could declare a given depending on their earnings tax return, which is especially essential in circumstances of twin custodial mother and father. Dependency claims of separated or divorced mother and father are resolved in favor of the custodial mum or dad. In some circumstances, beforehand decided courtroom decrees or a written declaration by the custodial mum or dad could launch the declare to the noncustodial mum or dad.

Sorts of Dependents

Qualifying Youngster

Particular assessments are used to find out if a dependent is a qualifying little one or a qualifying relative. To satisfy the IRC relationship check—and be thought-about a qualifying little one—the kid should be:

• The taxpayer’s son, daughter, stepchild, foster little one (positioned by a certified placement company), or a descendant (for instance, a grandchild) of any of them
• The taxpayer’s brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant (for instance, niece or nephew) of any of them

To satisfy the IRC age check, the kid should be:

• Beneath age 19 on the finish of the tax 12 months and youthful than the taxpayer (or the taxpayer’s partner if submitting collectively)
• A full-time pupil below the age of 24 on the finish of the 12 months and youthful than the taxpayer (or partner, if submitting collectively)

The resident and assist assessments are the ultimate assessments to find out if the person qualifies as a qualifying little one. To satisfy the resident check, the kid should have lived with the taxpayer for greater than half of the 12 months; nonetheless, there are exceptions to this rule.

For instance, if the kid or the taxpayer is briefly absent as a result of sickness, schooling, enterprise, trip, army service, institutionalized care for a kid who’s completely and completely disabled, or incarceration, then the kid remains to be thought-about a part of the residence (dwelling with the taxpayer) throughout this time.

The assist check requires that the kid can not have offered greater than half of their very own monetary assist through the tax 12 months.

You could be eligible to file as head of family even when the kid who’s your qualifying particular person has been kidnapped. This remedy applies for all years till the 12 months when there’s a dedication that the kid is now not alive or the 12 months when the kid would have reached age 18 (whichever is earlier).

Qualifying Relative

If these assessments usually are not met, the taxpayer could determine to see if the assessments for a qualifying relative are met. These assessments are barely totally different and are utilized solely when the assessments for a qualifying little one usually are not met. In contrast to a qualifying little one, a qualifying relative could be any age.

A qualifying relative should meet the “not a qualifying little one” check, the member of family or relationship check, the gross earnings check, and the assist check. As well as, a toddler can’t be a taxpayer’s qualifying relative if the kid is the taxpayer’s qualifying little one (or is the qualifying little one of another taxpayer).

To satisfy the member of family or relationship check, the particular person both should stay as a member of the taxpayer’s family all 12 months or be associated to the taxpayer. It is very important word that an adopted little one is handled the identical as a pure little one and that any relationships established by marriage usually are not ended by loss of life or divorce.

To satisfy the gross earnings check, the dependent’s gross earnings for the tax 12 months should be lower than the edge quantity. This quantity modifications yearly. For the 2022 tax 12 months (the tax return filed in 2023), it’s $4,400; it will increase to $4,700 for 2023.

Lastly, to fulfill the assist check, the taxpayer should have offered greater than 50% of the particular person’s complete assist for the tax 12 months. (This assist check needs to be differentiated from the one for a qualifying little one, which assessments whether or not the kid offered greater than half of their very own assist for the 12 months.)

Dependent Tax Concerns

Each being a dependent and having a dependent can influence your tax return, tax credit, and deductions.

Tax Credit for Dependents

If the IRC assessments decide that you’re a dependent, then it’s possible you’ll be eligible for sure tax credit and deductions by yourself tax return.

Earned Revenue Tax Credit score (EITC)

The Earned Revenue Tax Credit score (EITC) is a refundable tax credit score for low- to moderate-income working people and {couples}, significantly these with youngsters. The quantity of EITC profit a taxpayer receives is determined by earnings and the variety of youngsters of their family.

The EITC is:

• $560 in 2022 (the tax return filed in 2023) for childless households, growing to $600 in 2023
• $3,733 in 2022 for one little one, growing to $3,995 in 2023
• $6,164 in 2022 for 2 youngsters, growing to $6,604 in 2023
• $6,935 in 2022 for 3 or extra youngsters, growing to $7,430 in 2023

Youngster Tax Credit score (CTC)

For 2022, taxpayers can declare a Youngster Tax Credit score (CTC) of as much as $2,000 for every little one below age 18 if a taxpayer’s earnings is just not greater than $200,000 (or $400,000 if married submitting collectively. If the credit score exceeds the overall taxes owed, taxpayers will obtain as much as $1,500 (2022) or $1,600 (2023) of the steadiness as a refund.

Youngster and Dependent Care Credit score

You could possibly declare the kid and dependent care credit score if you happen to paid bills for the care of a qualifying particular person to allow you (and your partner, if submitting a joint return) to work or actively search for work. The quantity you obtain is a proportion of the work-related bills you paid to a supplier for the care of a qualifying particular person, and the share is determined by your AGI.

The credit score is capped at 50% of eligible bills (for people who make lower than $125,000 per 12 months) as much as $3,000 for one qualifying particular person and $6,000 for 2 or extra qualifying people.

Training Credit

The 2 schooling credit are the American Alternative Tax Credit score (AOTC) and the lifetime studying credit score (LLC). If the taxpayer has a dependent who attends a better schooling establishment, then the taxpayer shall be eligible to say the schooling credit related to the dependent.

The AOTC is a credit score for certified schooling bills paid for an eligible pupil for the primary 4 years of upper schooling. The LLC is for certified tuition and associated bills paid for eligible college students enrolled in an eligible instructional establishment.

The Backside Line

A dependent is somebody who depends on one other particular person for assist, often a toddler or different relative who’s unable to maintain themselves. For tax functions, dependents should meet sure qualifying assessments: the dependent taxpayer check, the joint return check, and the citizen or resident check.

Having qualifying dependents could make you eligible for sure tax advantages, together with Youngster Tax Credit score, the Youngster and Dependent Care Tax Credit score, and sure instructional credit. What number of dependents you might have can even have an effect on the Earned Revenue Tax Credit score you might be eligible for.