Dependent Tax Deductions

Audrey M. Jones
1040 tax form; © Ragsac19 | Dreamstime.com

Taxpayers may be entitled to tax credits or deductions if they support a dependent. The types of credits and rules regarding entitlement to them differ, but the standards for identifying someone as a dependent are typically the same.

Defining "Dependent"

In 2005, the Internal Revenue Service (IRS) established a six part test for labeling a person as a dependent. Failure to meet one of the six requirements means that the person is not a dependent. The IRS sometimes refers to a dependent as a "qualifying child." However, a dependent is not necessarily always a child.

Part One: Relationship

The individual sought to be claimed as a dependent must have a blood or legal relationship to the taxpayer. Generally, the individual must be the taxpayer's child, stepchild, foster child, sibling or step-sibling or a descendent from one of these groups of persons.

Part Two: Residence

The individuals must reside with the taxpayer for more than half of the year. Exceptions to this rule exist in situations of divorce or when the child was kidnapped or born and died within the same year.

Part Three: Age

The individual must be 19 or younger at the end of the tax year. However, the individual may be as old as 24 and still be claimed as a dependent if they were a full-time student for at least five months of the year. Additionally, an individual who is permanently or totally disabled for any portion of the year or the entire year can be claimed as a dependent.

Part Four: Support

The individual must not provide more than one-half of their support for the entire year. The individual may have an income, but it must not be larger than would pay for more than half of their support.

Part Five: Citizenship

The individual must be a U.S. citizen or national. Special rules exist for children adopted from foreign countries.

Part Six: Marital Status

If the individual is married and filing a joint return with his/her spouse, this individual cannot be claimed as a dependent.

Types of Deductions and Credits Available

There are several different deductions and credits available to taxpayers with dependents. The method for claiming them depends on their type. However, in all circumstances the dependent must have a Social Security number that the taxpayer includes in their claim.

General Dependent Exemption

Every taxpayer can claim an exemption for each dependent they support. The amount of the exemption is determined by their income. This exemption is in addition to any standard deductions the taxpayer claims.

In 2012, the maximum exemption was $3,800. The IRS provides an online service to assist taxpayers in determining the amount of their standard deduction. This exemption can only be claimed on Forms 1040, 1040A or 1040EZ.

Head of Household Filing Status

This option is neither a credit nor a deduction, but rather a way of identifying the taxpayer so that they may be entitled to a higher standard deduction and lower tax rates. A taxpayer's status is used to determine their filing requirements and eligibility for tax credits.

Usually, heads of households receive more tax credits and a higher standard deduction amount if they support dependents. To claim the status, the taxpayer must ensure that they meet the qualifications of a head of household and mark the box identifying them as such on their tax form.

Child and Dependent Care Credit

The child and dependent care credit is available to taxpayers who pay a third party to care for their dependents while they or their spouse works or looks for work. For this credit, the child may not be older than 13.

Taxpayers can deduct up to 35 percent of their qualifying expenses, depending on their annual gross income. In 2012, the maximum deductible amount for one child was $3,000 and $6,000 for two or more children. Taxpayers must file Form 2441 to determine the amount of credit they are entitled to and transfer that number onto the appropriate line in their Form 1040, 1040A or 1040NR.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a credit available to low and moderate income taxpayers. It provides the taxpayer with a credit for each dependent they support. The amount of the credit depends on the taxpayer's income, filing status and number of children in the home. This credit is claimed by completing Schedule EIC and attaching it to Form 1040 or 1040A.

Child Tax Credit

The Child Tax Credit (CTC) is a credit taken in addition to any Child and Dependent Care Expense and Earned Income Tax Credits. The CTC allows taxpayers to deduct a maximum of $1,000 for each dependent they support. The exact amount of the deduction depends on the taxpayer's income. To claim the credit, the taxpayer must file a Form 1040, 1040A or 1040NR.

Claiming Your Dependents

Supporting one or more dependents entitles you to tax credits, deductions and other advantages. If you meet the eligibility criteria for one or more of these credits, do not hesitate to claim them. Seek professional tax or legal advice if you are unsure how to properly claim a credit or deduction.

Dependent Tax Deductions