It costs quite a bit of money to raise a child. Fortunately, when it comes to taxes, the IRS recognizes this substantial expenditure and makes an allowance for a deduction from one’s taxes.
For tax year 2010, taxpayers were allowed to deduct $3,650 for each qualifying dependent listed on line 6C of Form 1040 or 1040-A.
There are a set of rules that must be met before you can legally claim someone as a tax deduction. These rules are discussed in their entirety in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Here are 5 frequently asked questions regarding dependency exemptions.
What is the age limit to claim my child as a dependent?
First of all, you should know that age is one of the tests for the Qualifying Child category of dependents. A person can also be a Qualifying Relative. In this case, age is not a factor, and as long as the other tests are met, you can claim the exemption. Publication 501 will assist you with understanding the differences.
A Qualifying Child must be under the age of 19 at the end of the calendar year or a full-time student under the age of 24. A full-time student is anyone enrolled and attending a school or college for at least five months out of the year. The months do not have to be consecutive.
I can claim my child, but they also must file a tax return. Who gets the exemption?
If your child earned enough money during the year to legally require them to file a tax return, or if they choose to file a tax return because they anticipate being able to get all of their Federal income tax withholding back as a refund, then you, as the parent, still are entitled to their exemption.
Form 1040-EZ, which is the form your child likely would be filing, asks if someone can claim them as a dependent. If so, then your child must use a worksheet on the back of the form in order to figure their reduced standard deduction.
Please note that the questions is not “Did someone claim you,” it’s “Can someone claim you” as a dependent? Even if you choose not to claim your child, the fact that you officially can means that they cannot claim their full personal exemption.
Can I claim my mother or father as my dependent?
You likely can. The person would have to meet the rules for a Qualifying Relative.
In order to be considered a Qualifying Relative, they first must be a member of your household or meet the relationship test. If they do not live with you all year, then they must be related to you. Your father, mother or grandparent would meet this test. Additionally, the IRS allows for temporary absences from the home and still considers the person as living with you. If your parent is placed in a nursing home for an indefinite period of time to receive constant medical care, the IRS considers that a temporary absence.
As long as the person meets the other two tests for a Qualifying Relative (Gross Income Test and Support Test), you can claim them. Their income must be less than $3,650 (for 2010) and you must have provided more than half of their total support.
My son or daughter live with me, and they also have a child that lives with us. Can I claim both my child and my grandchild?
According to Publication 501, if your child could be claimed as a dependent by another person (yourself in this scenario), then your child cannot claim anyone else as their dependent. In other words, a person who is supported by someone else also cannot be supporting their own dependent.
At times, there could be multiple income sources in the household. Assuming all are sharing tenancy under the same roof and responsible for the mortgage or rent, then the tie-breaker is the amount earned. The person earning the most is considered to be providing more than half of the total support for all dependents in that household. As long as all other tests are met, that person can claim the dependents.
My wife and I are divorced. Who gets the exemption for our dependent(s)?
Only one person can take the exemption. First of all, does a divorce decree or separation agreement address or grant the exemption to one or the other spouse? If so, this must be followed.
If not, the IRS uses the following tiebreakers to grant the exemption:
1. If only one person is the child’s parent, the parent takes the exemption.
2. Whom does the child live with? Who is the custodial parent? This person is entitled to the exemption.
3. If the child lived the exact same amount with both parents who have joint custody, the parent with the higher Adjusted Gross Income can take the exemption.
More from this Contributor:
Who is your dependent?
Do I Qualify for the Earned Income Tax Credit?
Are you eligible for the Child Tax Credit?