Tax Dependents: How To Claim Them On Your Next Return

Do you financially support a child, close family member or distant relative? If so, you may be eligible for certain deductions and exemptions that could save you money on your next tax return.

This article will cover what a dependent is, who qualifies as one and which credits you can claim. That way, when you submit your return, you’ll know if your children or family members can be listed as dependents for the previous tax year.

What Does ‘Tax Dependent’ Mean?

Having a tax dependent means that you’re financially responsible for someone other than yourself or your spouse. So if you are paying living expenses for a child, stepchild, foster child or any other family member, you may be able to claim them on your tax return.

Proving that you have a dependent allows you to reduce your taxable earnings by a specific amount, decreasing how much you’ll have to pay in income taxes.

Who Is Considered A Tax Dependent?

A dependent is anyone that allows you or your spouse to claim the dependency exemption, as stated by the Internal Revenue Service (IRS). While it might seem straightforward to figure out if you have a qualifying child or family member, there is actually a specific set of requirements your dependent must meet for you to claim them legally.

Below is the set of conditions that your child or relative must meet depending on their relationship to you.

Qualifying Child

If you want to list a child as a dependent on your return, they will need to meet all of the following requirements:

• The child must be a part of your family. That means they have to be your daughter, son, stepchild, foster child, half-sibling, brother, sister, stepbrother, stepsister or a child of one of these relations.
• The child has to be below a certain age. Last year, the dependent was 18 years old or younger, the child was 23 years old or younger and was a full-time student, or the dependent is older but has a disability noted by a doctor.
• The child lives with you. The dependent must have lived in your residence for more than half of the tax year. However, there may be an exception if they were away at school, in the hospital or there was another extenuating circumstance.
• The child can’t provide their own financial support. If the child has a job and pays for half of their expenses or more, they can’t be claimed as a dependent.
• The child can’t file a joint return. You can’t claim a child if they and their spouse are filing their return jointly. There is an exception if the child only filed their return to claim a refund of income tax withheld.
• The child must be a resident or citizen. The child has to be a U.S. citizen, resident alien, U.S. national or resident of Canada or Mexico.

Qualifying Relative

You can claim a relative of any age as a dependent, as long as they meet all of the following requirements:

• This person can’t be claimed as a dependent by someone else. You can’t claim a relative if another person could list them as a qualifying child.
• This person has to live with you or be related to you. This means that your dependent has to be a direct relative, such as a child, stepchild, adopted child, foster child, sibling, half-sibling, stepsibling, niece, nephew, parent, grandparent, parent-in-law, cousin, aunt or uncle. If they are not a family member, then this person must live in your home.
• This person has a gross income below a certain amount. For 2021, your qualifying relative can’t make more than $4,300. This requirement can be waived in some situations, so you may need to speak to a tax expert.
• You pay more than half of this person’s living expenses. These costs include rent, food, utilities, medical expenses and transportation. If multiple family members contribute to this person’s finances, you may need to sign a Multiple Support Declaration to claim them as a dependent.

How to Claim Dependents On Your Taxes

Thankfully, the process of claiming your tax dependent is fairly simple.

When filing your tax return, you can use either Form 1040 or Form 1040A (don’t use Form 1040EZ as it doesn’t allow you to claim dependents). Then you’ll provide your dependent’s personal information, like their name, Social Security number and relationship to you.

Once you have completed the top portions of the form, you can then apply the appropriate tax credits to your return to reduce what you owe and hopefully increase your expected refund.

Dependent Tax Credits To Use

For 2020, taxpayers with dependents could receive up to $2,000 per child or relative under the age of 17 for the Child Tax Credit (CTC). If the total amount exceeds your taxes owed, then you can get a refund of up to $1,400 per qualifying dependent.

Of course, there are additional tax breaks you can qualify for as well. Below are the other common ones taxpayers with dependents can use:

• Child and dependent care tax credit: You could qualify for this credit, if you paid child care costs for a dependent.
• Earned income tax credit (EIC): You could receive a refundable tax credit depending on your income and number of children.
• Education credits: If you have a dependent that attends college, you could claim credits for eligible expenses.
• Adoption credit: Up to $14,400 of adoption fees could be covered per child for the 2021 tax year.

Before using the above tax deductions, speak with a tax professional that can help you determine which ones you qualify for.

The Bottom Line: Claiming Dependents On Your Taxes Can Save You Money

As you can see, determining if your child or family member is eligible for dependency status can be complicated. Even though this process might be intimidating, it’s worth the time and effort to determine if you have qualifying dependents. Properly claiming them on your tax return could make the difference between owing taxes and receiving a sizable refund.

To learn more about saving money when filing your return, read about tax deductions and how to use them.