What is a dependent?
A dependent is an eligible person who authorizes a taxpayer to claim tax benefits related to a dependent on a tax return. Internal Revenue Code (IRC) tests establish a person’s eligibility to be dependent on a taxpayer for dependency claims.
A dependent can be an eligible child or an eligible parent whose status is determined by the Internal Revenue Code (IRC) tests. To qualify as a dependent, the person must meet specific requirements. Qualifications include passing the dependent taxpayer test of not being dependent on a taxpayer who is also dependent, of being an eligible child or an eligible parent, or of taking the joint reporting test, where they cannot have produced specific joint declarations. In addition, the dependent must be a US citizen or a North American resident who passes the citizen / resident test.
The IRC relationship test determines whether a dependent is an eligible child or parent, such as the taxpayer’s brother or sister. The category of a child includes people under 19, disabled or students under 24. Eligible dependent children must have lived with the taxpayer for more than half the year and not have earned more than half of their financial assistance.
An eligible dependent parent must have lived all year as a member of the taxpayer’s household and pass the relationship test to be registered as a member of the household. In addition, the dependent parent may not be the taxpayer’s eligible child, have gross income of more than $ 3,950, and have received more than half of their financial support from the taxpayer.
A person who meets all of these criteria is the taxpayer’s dependent for the purposes of claiming a dependency exemption, production status or credit. The dependency exemptions that a taxpayer can claim include the status of head of household (HOH) or eligible widower (QW).
Income-specific credits such as the Earned Income Tax Credit (EITC) and the CTC Child Tax Credit) are specific to variations in age, relationship, alimony and income. Other possible credits include the Additional Child Tax Credit (ACTC) and the Child or Dependent Credit (CDCC).
Only one taxpayer can claim a given dependent on their tax return, especially crucial in the case of parents with dual custody. Several support agreements resolve the dependency claims of more than one taxpayer. Requests for independence from separated or divorced parents are settled in favor of the custodial parent. In certain cases, previously determined judicial decrees or a written declaration by the custodial parent may deliver the request to the non-custodial parent.
Tax benefits for dependents reduce taxes in a number of ways. The exemptions reduce the tax burden by lowering taxable income. Production statuses do this by reducing taxable income and the tax rate. Credits can provide the most significant tax reduction, as they directly reduce taxes owed and, if the credit is repayable, refund any excess.