Essential Information About Claiming a Tax Dependent

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Tax can be hard to navigate, no matter what stage of life you are in. Poor tax management can lead to penalties and debt that lead to higher payments. The best approach to these is to consult with IRS tax debt settlement services, but it should come with good practices to avoid future problems.

Then when you become a parent or guardian, the topic of tax dependents also becomes an important matter. When you are taking care of children, aging parents, or even a sibling, tax dependency enables you to best attend to their needs and save money in the process.

What Is a Tax Dependent?

A tax dependent is simply any person other than the taxpayer who allows the taxpayer to claim certain benefits, such as tax credits and deductions, because of their dependency status. Dependents are individuals who rely on another person for financial support, which is not limited to immediate family members and blood relatives.

Who Can You Claim as a Tax Dependent?

It is an often difficult task to find out who qualifies as a tax dependent. However, the IRS has tests to confirm if a taxpayer can claim someone.

Some rules apply to every dependency category. These are initial considerations to check when determining a person’s eligibility for dependency status:

  • Firstly, a person will only qualify if they have not already been claimed by someone else or are not currently claiming another person as a tax dependent.
  • A married person who already files a joint tax return is also not qualified for tax dependency.
  • A person’s citizenship is also essential. Only U.S. citizens, U.S. residents, U.S. nationals, or Canadian and Mexican residents are eligible for tax dependency. Some exceptions apply, such as for adopted children who have lived with the taxpayer for the whole tax year.
  1. A Child Related to You

Children can become your tax dependent, even if they are not your son or daughter. They can also be your foster kid, sibling, step-sibling, half-sibling, or anyone else who is an offspring of the previously mentioned parties.

A qualifying child must also have lived in the same house as you for more than half of that tax year. Note that temporary absences due to schooling, hospitalization, or rehabilitation are excusable.

There are also three ways to qualify age-wise:

  • First, the child should be 18 or younger by the year’s end. They should also be younger than you or your spouse.
  • For college students, they must be younger than 24 to be eligible and should still be younger than you or your spouse. They also have to have been in school full time for at least five months in the tax year.
  • In the case of persons with total permanent disabilities, they can become dependents even if they go beyond the given age restrictions.
  1. Your Relative

Relatives are not subject to age limits. You can claim people such as your parents, stepparents, in-laws, aunts, uncles, grandparents as your dependents if they meet the following criteria:

  • Their gross income is less than $4,300 in that tax year. Note that gross income includes salary, investments, and taxable government benefits.
  • You have been responsible for more than 50% of the financial support of the qualifying relative for that tax year. Support includes food, shelter, clothing, transportation, medical care (if not reimbursed), and even recreation costs.

Do You Get Tax Breaks for Claiming a Tax Dependent?

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Yes. Different dependents make you qualified for various tax credits. These are not all, but they are good starting points when understanding tax credits:

Child Tax Credit

This is meant to answer for the costs of raising children. In 2021, taxpayers can get up to $3,000 per child under 17 years of age or $3,600 per child under six years old.

Head of Household Credit

This applies to unmarried taxpayers who are responsible for at least 50% of the cost to support a household. This gives you better tax deductions than simply filing as a single taxpayer. For example, NerdWallet reports that the standard tax deduction for single filers was $12,400, while it was $18,650 for heads of households.

Earned Income Credit

EIC is only applicable to low-income taxpayers. Tax dependents are also not a requirement for low-income earners to get this. However, deductions can go up to $6,728 this year, depending on marital status, the number of children, and income.

Filing taxes is an often daunting task, but familiarizing yourself with your responsibilities and benefits makes it more accessible. When you know who your dependents are, you can begin fixing the paperwork to claim them.