Adding dependents to your tax return can help you save thousands of dollars. However, many of us are unaware of who in our family may qualify as a dependent.
Are you unsure whether your Uncle Jack, Grandma Betty, or daughter Joan qualify as dependents? Here’s a cheat sheet to help you quickly determine which family members you can claim on your tax return.
Claiming a Dependent: Why It Matters
If you have a family, you should understand how the IRS defines “dependents” for tax reasons. Why? Because it has the potential to save you hundreds of dollars in taxes. For tax years previous to 2018, each eligible dependent you claim reduces your taxable income by the exemption amount, which in 2017 was $4,050. This adds up to significant tax savings for you.
Exemptions have been replaced by the following for tax years 2018 through 2020:
- a higher standard deduction
- A higher Child Tax Credit (now worth up to $2,000 per qualified child)
- an increase in the Additional Child Tax Credit (up to $1,400 per qualified child)
- in addition to a new Credit for Other Dependents valued up to $500 per qualified dependent (not to be confused with the Child and Dependent Care Credit)
The American Rescue Plan expands the Child Tax Benefit for your 2021 tax return, which you will file in 2022, bringing the per-child credit to $3,600 or $3,000, depending on your child’s age. For 2021, the credit is likewise entirely refundable. Beginning in July 2021, the IRS will begin handing out advance payments of the 2021 Child Tax Credit to get money into the hands of families sooner.
Other benefits are also subject to dependent rules:
- Earned Income Tax Credit
- the Child and Dependent Care Credit, which may be used to offset childcare costs
- medical expenditures, various other itemized deductions, and the vast majority of tax credits involving children or family difficulties
Being eligible for these advantages might be the difference between owing money and obtaining a refund.
The fundamental rules are straightforward. However, applying such standards to specific family situations might be tricky. This is especially true if you have a son away at college, a relative who lives with you over the summer, or a daughter who works part-time. The following guide will assist you in determining which relatives you can claim as dependents.
Who Can You Claim as a Dependent on Your Tax Return?
Dependents are typically children or other relatives; however, this is not always the case. There are different standards for eligible children and qualified relatives, but all dependents must fulfill the following:
- Dependents may have their tax returns and may even be married, but they must not have filed a joint tax return for the year unless they are only claiming a refund.
- They must be US citizens, US nationals, resident aliens, or Canadian or Mexican residents.
- They must have a taxpayer identification number. It is normally a Social Security Number, but if the kid does not qualify, it might be an Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN).
- Furthermore, if you are a dependent yourself, you cannot claim another person as a dependent.
Dependents are typically your children, but other relatives may also meet the guidelines. If you want to claim someone as a dependent, you must be able to document that relationship, that the person qualifies as a dependent, and that they don’t file a joint return with someone else.
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