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Dependency Exemptions: Facts About Claiming Exemptions on Your Tax Return

  Sanjiv Gupta CPA  Published 
Dependency Exemptions: Facts About Claiming Exemptions on Your Tax Return

Taxpayers can claim exemptions on tax returns that can be deducted from their taxable income. One kind of exemption is the exemption for a dependent. This is lower than the amount of the income that is subject to tax which can also deduct the total tax owed.

Dependent exemptions can be claimed for qualifying dependents. A taxpayer can only have one exemption for every person that he claimed to be his dependent. There are lots of rules concerning who is qualified to be dependent and if this exemption can be eligible for tax returns.

Only a single exemption can be received by each. Take this situation, for example, if the dependent is claimed by another taxpayer, then the taxpayer can no longer claim that individual. This holds true if the dependent also filed his or her tax return.

Rules in Declaring and Claiming Exemptions for Dependents

  • Spouses cannot be dependents. The taxpayer’s spouse is not a dependent and never will be considered as one. Taxpayers cannot claim this for their spouses. The exception to this is they are married, and they filed a joint return, they can claim a personal exemption for one and another for the spouse.
  • Dependent exemptions have the same worth as personal exemptions. For example, for the tax year of 2015, the dependent amount for exemption was $4,000. This was the same for the personal exemption. Taxpayers can claim a $4,000 exemption on the tax return for every dependent that qualifies. Another example, a married couple who has two children can claim two personal exemptions ($4,000 for the husband and wife) and two for the dependent exemptions ($4,000 for every child) on the joint tax return which amounts to $16,000.
  • Qualifying child and qualifying relatives can also be considered as dependents, as long as they meet the dependency test of the IRS and makes them eligible to be a dependent. They also have to provide the SSN or the Social Security Number for every dependent before they can claim the exemption or exemptions. However, if another taxpayer has listed this taxpayer as a dependent, then the latter can no longer claim other individuals to be their dependents. In a nutshell, a dependent cannot have more dependents.

Just like tax deductions, dependent exemptions can assist taxpayers in decreasing their tax liability. These exemptions are deducted from the adjusted gross income or the AGI to reach the taxable income of the taxpayer.

The amount of the dependent exemption varies, depending on the inflation of the income tax year. Annually, it increases $50 yearly to adjust accordingly to inflation. The phase-out levels of income when claiming exemptions tend to vary every couple of years. Before taxpayers file their tax return, they should double-check whether they can qualify accordingly to the exemptions that have been listed in the Income Tax code.

How to Claim Children and Relatives as Dependents on Tax Return

If the taxpayer supports children and relatives and even non-relatives, then they can declare them as their dependents on the tax return whenever they file for it.

First, however, the definition of a dependent must be defined. According to the IRS, a Qualifying Child and a Qualifying Relative can be declared as dependents of the Taxpayer once they meet the eligibility listed in the IRS code.

What are the Dependent Rules of the IRS?

If the dependent of the taxpayer is either a qualifying relative or a qualifying child, then tax exemptions can be claimed for them. The taxpayer may also qualify for more tax benefits. Each dependent can have one exemption.

A dependent exemption is different from the dependents of tax deduction because the exemption is deducted from the AGI or the adjusted gross income before the income that is taxable has been calculated. After that calculation, the tax deductions are then deducted from the income that is taxable.

What are the Tax Benefits of Dependents?

  1. It is possible to have one tax exemption for every dependent.
  2. Having dependents can give the taxpayer access to other tax benefits, as long as they filed as the Head of Household, the expenses for the Credit for Child and Dependent Care along with the Child Tax Credit, and have higher Earned Income Credit. This is also the exclusion of the income of the taxpayer’s dependent care benefits.

Can the Tax Payer Claim Dependents on Tax Return?

If an individual qualifies as the dependent, then the taxpayer can also claim this on their tax return, unless the taxpayer or the spouse of the taxpayer is eligible to be dependent on the other person. However, if the taxpayer is already listed as the dependent of another taxpayer, then he or she is no longer eligible to file other individuals to be his or her dependent. Neither is he or her eligible to take exemptions.

Who Can Be Dependents on Tax Return?

A taxpayer can claim another individual as his or her dependent if the individual meets all three requirements:

  • They are US citizens, US nationals, resident aliens or residents of Canada and Mexico. An exception to this rule is the legally adopted children.
  • They are not filing jointly nor are they married. The exception is when the joint return is a claim for a tax income refund. That being said, there are no taxes owed by any of the spouses, especially if they filed separate returns.
  • They are eligible for Qualifying Child or Qualifying Relative, based on the statutes set by the IRS rules.

Adopted Child is a Special Case

A child who has been legally adopted by any US citizen who is a taxpayer will always be considered the child of the taxpayer. If the taxpayer adopted a child who is a resident alien or not a US national or US citizen, he or she can still be eligible as the dependent of the taxpayer, as long as he or she has been living under the same roof like that of the taxpayer for one whole year.

If the child was placed with the taxpayer for the purpose of a pending legal adoption, he or she could already be considered as the adopted child of the latter all for the intent of the child being claimed as the dependent.

How Can a Child Qualify?

If the taxpayer has a child that is considered to be Qualifying Child based on the requirements set by the IRS, then the former can claim the latter as a dependent. First and foremost, the child must be your relative, even if he or she is not exactly your child.

How Can a Relative Qualify?

If the relative meets the requirements of the IRS to be considered a Qualifying Relative, then they can be claimed as the dependent. It is important to note that Qualifying Relatives do not need to be relative. One requirement for them is that they have been living under the same roof as that of the taxpayer for one year.

Is It Possible to Claim Two or More Dependents?

As a general rule, only one taxpayer (whether they are married filing together or separately) can claim any individual as their dependent. The tax benefits when claiming an individual as their dependent cannot be a split venture unless it is listed in the decree of the divorce. If multiple taxpayers claim that the same individual is their dependent, then the IRS applies a series of tiebreaker rules to determine which one between them has a more legitimate claim.

As for divorced parents, custodial parents usually have more right to claim a child as their dependent. The custodial parent releases this claim and allows the non-custodial parent to also claim the child. This is done by attaching a statement or filling up Form 8332 which is the Release of Claim to Exemption.

How are Dependents Claimed on Taxes?

Taxpayers claim their dependents whenever they prepare and file their tax returns. It is not difficult to claim dependents as long as the return is properly prepared and on time.

The taxpayer must have access to the Social Security cards of the dependents because they need to enter the information exactly as these are written on the cards. If the taxpayers do not have the SSN, then adoption papers or ITIN or individual taxpayer identification number is acceptable.

Here are More Facts About Exemptions and Dependents That Taxpayers Must Know

  • Tax returns must be filed electronically. This is the easiest way to complete a tax return accurately and efficiently. The software that can be used to file electronically also determines how many exemptions can be claimed by the taxpayer. E-file options include IRS Free File, Volunteer Assistance, professional assistance, and commercial software.
  • Exemptions in cut income. There are two kinds of exemptions. The first one is the personal exemption and the second one is the exemption for the dependent.
  • Taxpayers can claim exemptions for each one of their dependent. The dependent can either be the child or the relative who is qualified to be one. Taxpayers cannot claim their husbands and wives as their dependents. Taxpayers should also list the SSN of each of their dependents for them to claim this appropriately on their tax returns.
  • Some people just do not quality. Married persons could not guarantee quality as dependents if they filed together with their spouses. Then again, there are exceptions to this rule.
  • Dependents must file. The individual who was declared as the dependent of the taxpayer must file individual tax returns. This, of course, depends on other factors, such as whether they are married, if the tax is owed or the amount of the total income accumulated.
  • There are no exemptions on the tax return of the dependent. If the taxpayer can claim the individual as a dependent, the latter cannot claim the personal exemption of the taxpayer’s tax return. This holds true even if the taxpayer does not claim that individual on his tax return. This rule is applicable because the taxpayer can claim the individual to be his or her dependent.

Tax Exemptions and Deductions for Families

Families can save more on taxes than a single person. It may be overwhelming at first but once understood it would be easy to see who can be claimed as dependents and which exemptions and deductions that are family-related apply to the situation for the taxpayer.

Like families, the taxpayer can save more on their taxes than an individual. Once the deductions available to the taxpayer are cited, then it is possible to save more money for the income tax year which makes it possible for them to plan a better future.

For those who are not yet adept in preparing an income tax returns and are willing to take advantage of the deductions that they are entitled to, they can look into the possible exemptions as well as dependency claims. Some of these may have been overlooked.

Tax Exemptions for the Tax Payer and Their Dependents

The exemption is the amount of money that can be deducted from the AGI or the Adjusted Gross Income. Dependent exemptions for the taxpayer as well as the qualifying members can reduce the income amount that is taxed.

For example, in the income tax year of 2016, the taxpayers can claim $4,050 for every qualifying child. Another tricky thing on dependent’s exemptions is that high earners do not get full benefits. Personal exemptions phased out for married couples that file jointly.

Other important tax breaks that taxpayers who are parents must understand is that they can adopt a child and make the most out of that sizable tax credit. As the qualifying child gets older, the taxpayer is entitled to $2,000 deduction on tuition. There are more benefits to this that they can make the most out of.