The state of California offers an income tax break for taxpayers who have dependents in the form of dependent exemption credits. To be eligible for this tax credit, taxpayers must make sure that their dependents meet two qualifications under the state tax guidelines: First, a qualifying dependent must be a qualifying child or a qualifying relative. And second, a qualifying dependent must meet two tests – the joint return test and the citizenship test.
A qualifying child must meet four tests:
- Relationship test. A child must be one of these relatives or a descendant of one of these relatives: birth child, adopted child, stepchild, eligible foster child, sister, half-sister, stepsister, brother, half-brother, stepbrother, niece, nephew or grandchild.
- Age test. The child must be younger than 19 years of age or younger than 24 years of age if a full-time student. Also qualifying under the age test are persons who are permanently or totally disabled during any time in the calendar year.
- Residency test. A qualifying child must live with you for more than half of the tax year for which you claim the dependent exemption.
- Support test. Qualifying children may have income, but it cannot be more than half of what you provide.
A qualifying relative must meet four tests:
- Not a qualifying child. To claim a dependent exemption, your qualifying relative cannot be your qualifying child or someone else's qualifying child.
- Relationship test or member of the household test. A qualifying relative must be one of these relatives: birth child, adopted child, stepchild, grandchild, parent/step-parent, grandparent, mother-in-law, father-in-law, daughter-in-law, son-in-law, sister, half-sister, stepsister, sister-in-law, brother, half-brother, stepbrother, brother-in-law, aunt, uncle, nephew or niece.
- Gross income test. You cannot claim a dependent exemption credit if your qualifying relative's gross income is equal to or more than the federal allowable dependent amount for the tax year. If your qualifying relative is married or a registered domestic partner (RDP), you also have to consider the income of your relative's spouse or RDP when you apply the gross income test. You can visit IRS.gov to find Publication 17 (Your Personal Income Tax) for more details.
- Support test. You must provide more than half the financial support for a qualifying relative during the tax year, and you must consider all sources of income including social security benefits.
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Joint Return and Citizenship Tests
Typically, you're not allowed to claim a dependent exemption tax credit if your dependent files a joint tax return, even if that person qualifies as a dependent. But there are two exceptions. You can claim the exemption if your dependent or his/her spouse or RDP would not have a state or federal tax liability if they filed separate returns. You can claim the exemption if your dependent only filed a joint return in order to receive an income tax refund. A qualifying dependent must also be a U.S. citizen, a national or a resident of the U.S., Mexico or Canada during at least part of the tax year.
Exceptions and Definitions
The state of California establishes many definitions, including child, stepchild, foster child, adopted child and parent for taxpayers to qualify for dependent tax credits. California also defines numerous exceptions and qualifications for this credit. You can visit the State of California Franchise Tax Board website at FTB.ca.gov, search for "head of household (HOH) legal definitions" and follow the link to "dependent exemption credit" for these details.
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