Dependency, Filing Status, and Income Documents
What is a Dependent? A person, other than the taxpayer or spouse, who entitles the taxpayer to a dependency exemption.
Always Determine Dependency Status First Before Starting a Return
Determining whether or not someone can claim a dependent or be claimed as dependent on a tax return can have a major impact on the refund or amount owed. When beginning a return, it is important to carefully determine dependency status to ensure the return is prepared correctly.
Be sure to use the Pub 4012, Tab C to make the appropriate determination for all dependents each time you start a return.
Two Types of Dependents–Qualifying Child and Qualifying Relative
A dependent may either be a qualifying child or a qualifying relative. For every taxpayer, always start by checking to see if their dependent qualifies as a qualifying child. If the possible dependent does not meet the rules to be a qualifying child, check to see if they qualify as a qualifying relative. The charts in Publication 4012, Tab C are included below will guide you through this process!
Permanently and Totally Disabled:
Can not engage in gainful activity and must have been determined by a doctor has determined that the condition will last for at least a year or can lead to death. Generally, a taxpayer will know if the person in question is permanently and totally disabled.
Full Time Student:
The full-time student designation is decided by each individual school; must be considered a full-time student for at least five months during the year. Qualifying students must have been enrolled at a school for the number of hours or classes the school considers full-time AND must have been a full-time student for some part of each of 5 calendar months during the year.
Qualifying Child Dependents
ALL of the following must apply for the possible dependent:
- If the possible dependent is married, they cannot file a joint return with their spouse.
- Must be U.S. Citizens, U.S. resident aliens, U.S. nationals, or a resident of Canada or Mexico.
- Must be directly related to the taxpayer
- Must be under 19, under 24 and a full-time student, OR any age and permanently and totally disabled
- Must have lived with the taxpayer for at least half the year
- Cannot be a qualifying child of anyone else
Qualifying Child Video Walkthrough
Qualifying Relative Dependents
- Can not be the qualifying child of anyone else
- Must be directly related or directly related by marriage OR
- Have lived with the taxpayer ALL year
- The dependent in question must have had a “gross income,” of under $4,300.
- The taxpayer must have provided more than half of the person’s total support during the year
- If not, may still be a qualifying relative under certain circumstances–for now, focus on these requirements, but know that more complicated scenarios may arise. Always use the Pub 4012 chart to make the appropriate determination.
Qualifying Relative Dependent Walkthrough
Impact of Dependents on Tax Return
As mentioned above, dependents can have a major impact on a tax return. Correctly determining whether or not someone is a dependent can change taxpayer’s filing status and qualify them for key tax credits that will increase their refund. The process of going through these charts will be tricky at first but will become second nature with time. Potential benefits of claiming a dependent include:
➢Child Tax Credit (up to $2,000 per child)
➢Child and Dependent Care Credit (up to $500 per dependent)
➢Education Credit (up to $2,500 – American Opportunity Credit)
➢Head of Household Filing Status (increased standard deduction)