At a Glance
Main Takeaway
Understand the requirements for children, college students, and relatives to qualify as tax dependents for deductions and other related tax credits.
Next Step
Contact a Windes Accountant for advice on tax dependent deductions and help with return preparation and tax filing.
Being a parent is a life-long job with many financial and personal responsibilities. The federal government understands the impact raising children may have on your earnings and offers tax dependent deductions and credits to parents. These deductions can save you money on your taxes but carry limitations and eligibility requirements.
Learn if your child qualifies as a tax dependent and what deductions and credits are available to help you minimize your tax liability and meet your wealth accumulation goals.
Does Your Child Qualify as a Tax Dependent?
You can start claiming your child as a tax dependent on your state and federal taxes the year they are born. To qualify for this status, the child must meet specific requirements such as passing the relationship, age, and residency tests.
Qualifying Child
The child must be your son or daughter, foster child, sibling, stepchild, step-sibling, half-sibling, or a descendent of one. To pass the age test, the child must be younger than yourself and your spouse and be under 19 if they reside at home or 24 if they attend college. Tax dependent age limits do not apply if the child is permanently disabled.
The child must have lived with you for at least half of the tax year to use the tax dependent deduction. Some temporary absences are permitted, such as children residing at college, away at juvenile detentions, and hospitalizations. Exceptions are also made for children born or who died during the tax year or under extreme circumstances, like kidnapping.
Separated and divorced taxpayers cannot both claim their child as a tax dependent. Typically, the custodial parent retains the tax deduction, but this is subject to agreements between the couple. The parents’ income may also play a role in deciding who can claim the dependent.
Qualifying Relative
You can also claim other qualifying relatives. There are no age limitations, but the relative cannot be claimed as a qualifying child on someone else’s taxes. The relative must either live with you or be related to you; they do not have to meet both requirements.
The person must have lived with you for the entire tax year or be your child, adopted child, foster child, stepchild, sibling, step-sibling, half-sibling, nephew or niece, or grandchild. Older relatives, such as a parent, step-parent, aunt or uncle, or grandparent, also qualify. Residency exceptions are made for those hospitalized, in detention, or attending college.
Qualifying relatives are also subject to income limits. Your relative’s gross income for the tax year must be less than $4,300 unless they are disabled. Business income, rental property income, and taxable Social Security and unemployment benefits are all included in gross income.
You may be eligible to claim a child or relative as a dependent for tax purposes if they meet the above requirements and:
- You support them for more than half their needs during the year, including housing, education, travel costs, insurance, medical care, utilities, food, and any recreational spending
- You pay child support, they live with you less than half the year, and you have signed IRS Form 8332
- You are unmarried, share custody, and have the highest adjusted gross income
If you are unsure of your child’s or relative’s eligibility, you can use online tools like this questionnaire from the IRS or contact Windes to talk to an experienced accountant who can help determine your eligibility.
Other Available Tax Credits and Deductions
The Tax Cuts and Jobs Act (TCJA) paused the deduction for dependent exemptions until 2025. To make up for this loss of savings, consider one of the following tax credits:
Child Tax Credit
The TCJA increased the child tax credit parents with qualifying children can receive from $1,000 to $2,000. This dependent child tax credit is refundable up to $1,400, so you can still receive a partial refund even if your tax liability is low. The credit begins phasing out when modified adjusted gross income (AGI) exceeds $400,000 in the case of married taxpayer filing jointly and $200,000 for all other taxpayers.
In 2021, the child tax credit increased to $3,000 per child up to age 17 and $3,600 per child under six. The 2021 increased child tax credit begins phasing out when modified AGI exceeds $150,000 in the case of married taxpayer filing jointly, $112,000 in the case of a head-of-household filer, and $75,000 for all others.
If your dependents do not meet eligibility requirements for the above-mentioned child tax credit, you may still be able to claim a nonrefundable $500 tax credit. This credit applies if you have college-aged children or a dependent parent.
Earned Income Tax Credit
The earned income tax credit (EITC) reduces the amount of taxes you owe and could make you eligible for a tax refund. The EITC is based on the income you earn during a tax year. Your EITC is also based on the number of children you have, though you do not have to have a child to qualify for this tax credit.
In general, families with children and those who earn less receive a more significant tax credit. The EITC ranges from $1,502 to $6,728 for the 2021 tax year.
To qualify for this credit, you must have earned at least $1 of income during the tax year. If you filed for foreign earned income or a foreign earned income exception, you are not eligible for the EITC.
Since this tax credit aims to help lower and middle-income families, there are strict income limits for eligibility. If your AGI is more than $57,414 or you have more than $10,000 of investment income during 2021, you are not eligible for this tax credit. The AGI limit varies based on the number of children in the household and is adjusted annually for inflation. Regulations prevent the IRS from issuing this credit before March, so your refund may be delayed if you claim the EITC.
Get Comprehensive Tax Planning
Life is full of challenging experiences and unexpected events. Working with an accountant can help manage the impact of life’s changes and unforeseen circumstances. For personalized advice on how to claim dependents, contact Windes. Our accountants can help you manage return preparation and filing with our individual tax preparation and filing services. We also offer alternative minimum tax planning and financial planning services. Contact our office for more information. We serve clients throughout Los Angeles, Long Beach, and Orange County.