DEPENDENTS            

There are five (5) tests to be met for an individual to be eligible to be claimed as a dependent. 

1. Member of Household or Relationship Test: The person must live in your home all year or, if they live elsewhere, must be a qualified relative. Relatives the IRS will allow you to claim but who do not have to live with you include: your child (by birth or legal adoption), stepchild, grandchild, great grandchild, brother, sister, step- or half-sibling, parent, stepparent, grandparent, aunt, uncle, niece, nephew or immediate in-laws. There are special rules for foster children and cousins, as well as exceptions for dependents who are born or die during the tax year.

2. Citizenship or Resident Test: The person must be either a U.S. citizen or resident or a resident of Canada or Mexico for at least some part of the tax year for which the person is claimed. A child of U.S. parents (or even one U.S. parent) is usually considered a citizen, even if the baby was born in another country. And your adopted child doesn't have to be a citizen; as long as the child lives with you and is a member of your household for the entire year, you can claim him.

3. Joint Return Test: You cannot claim as a dependent anyone who files a joint tax return with someone else. The IRS does grant an exception here if the joint return was filed solely to claim a refund of tax withheld.

4. Gross Income Test: The person's gross income must be less than the annual exemption amount; $3,050 for 2003 returns. This restriction doesn't apply to children younger than 19 at the end of the tax year or who are full-time students under the age of 24.

5. Support Test: The taxpayer must have provided more than half the person's total support. This includes food, clothing, shelter, education, medical expenses and recreational costs. The IRS makes exceptions in cases where several taxpayers have signed a multiple support agreement (for example, children caring for a parent) and where the dependent is a child is supported by divorced parents.

A spouse is never considered a dependent. However, you can claim an exemption for your husband or wife as long as you file a joint return.

You also are allowed an exemption deduction for yourself. But if you file a return while being claimed as a dependent on someone else's 1040, the IRS warns that you won't be able to claim a personal exemption on your own return.

Be sure to include your dependent's Social Security number (SSN) when you file your return. Your dependent will not be able to claim a personal exemption on his/her own tax return if you are able to claim him or her.

Finally, depending upon your income and filing status, the exemption amount for your dependent may be phased out.

2005 Tax Law Changes Relating to Children

Beginning 1/1/2005, there is a new Uniform Definition of "CHILD" for the purpose of:

• Dependency exemption,
• Child tax credit,
• Earned income credit (EIC),
• Child & dependent care credit, and
• Head of household filing status.

Under the uniform definition, a child is a "qualifying child" of the taxpayer if the child meets THREE tests:

1. Relationship

2. Residence

3. Age

Residence - The child must live with the taxpayer in the same principal place of abode in the United States for MORE THAN half the year. Military personnel on extended active duty outside the United States would be considered to be residing in the United States. The taxpayer and child are considered to live together even if one or both are temporarily absent due to special circumstances such as illness, education, business, vacation, or military service.

NOTE: Legally adopted children who are NOT citizens or residents of the United States may be a qualifying child if the child's principal place of abode is the taxpayer's home and the taxpayer is a U.S. citizen or national.

Age for Dependency Exemption, Earned Income Credit, and Head of Household Filing Status - The child must be under age 19 (or under age 24 if a full-time student) on the last day of the tax year, or any age if totally and permanently disabled.

Age for Child & Dependent Care Tax Credit - The child must be under age 13 at the time care is provided (or any age if physically or mentally incapable of caring for himself or herself).

Age for Child Tax Credit - The child must be under age 17 (whether of not disabled) on the last day of the tax year.

What happens if a "qualifying child" is a qualifying child of MORE THAN one taxpayer?

A "tiebreaker rule" will apply if more than one qualifying taxpayer claims a benefit for the same child.  If a child may be a qualifying child with respect to more than one taxpayer and more than one person claims a benefit with respect to the child, then:

1. when only one taxpayer would be a parent of the child, the child is deemed a qualifying child of the parent;

2. when both parents claim the child and do not file a joint return, the child would be deemed a qualifying child first with respect to the parent with whom the child resides for the longest time, and secondly with respect to the parent with the highest adjusted gross income; and

3. when neither parent is a claimant, then the child would be a qualifying child with respect to the claimant with the highest adjusted gross income.

Modifications to Dependency Exemptions for Non-custodial Parents

The new law modifies the structure of the custodial waiver rules under which a custodial parent may release the claim to a dependency exemption to a non-custodial parent.  As modified, the waiver rules  provide that if a waiver is made for purposes of whether a child is a qualifying child, such waiver would apply for the dependency exemption and the child tax credit (which requires that a dependency exemption be made for the child),  but NOT for the earned income credit, head of household status, or dependent care credit.

Updated 4/28/2005