Each year, tax preparers are bombarded with one particular question among many: Whom can I claim as a dependent on my tax return? The answer, though simple, is best understood by explaining personal and dependency exemptions.
The Internal Revenue Service (IRS) allows you, as a taxpayer, to claim yourself on your tax return. This is called a personal exemption. If you are married filing jointly, another personal exemption is allowed for your spouse so long as neither of you can be claimed as a dependent by another taxpayer. Additionally, you may claim a deduction for each of your qualifying dependents.
The total amount allowed for each personal exemption or for each dependent is set at $4,050 for 2016.
The deduction is subject to the phase-out rules which reduce the total exemption amount if adjusted gross income is above a certain amount ($259,400 – Single, $311,300 – Married filing jointly, $155,650 – Married filing separately).
A common misconception is that an individual must be your child to qualify as a dependent. There are numerous scenarios in which one may claim another individual as a dependent. The IRS defines a dependent as an individual who is either a qualified child or a qualifying relative.
In order to claim someone as a qualifying child, that child must:
- Be your son, daughter, stepchild, foster child, sibling, stepsibling, or a decedent of any of them, such as a grandchild.
- Have lived with you for more than half of the year.
- Be 18 or under or a full-time student who is 23 and under.
- Not have paid for more than half of his or her support for the year.
- Not have filed a joint return with his or her spouse.
In order to claim someone as a qualifying relative, that individual must:
- Be related to you or lived with you all year.
- Have gross income less than the exemption amount ($4,050) for the year.
- Have had more than half of his or her support for the year paid for by you.
- Not be considered your qualifying child or anyone else’s qualifying child for the year.
If you are eligible to claim an individual as a dependent, that person cannot claim a personal exemption on his or her return. Additionally, there are special rules if two or more individuals can claim the same qualifying child, as well as special rules for divorced parents claiming children.