One of the tax benefits of having children is that you can claim them as dependents and claim exemptions for each one of them on your return. However, there is a difference between not claiming your child because you have no taxable income versus not having gross income. Since you don’t know what your taxable income is until you file a return, it’s to your benefit to claim the exemption anyway.
Gross vs. Taxable
The terms “gross income” and “taxable income” generally refer to two different income numbers when preparing your tax return. Generally, you can only calculate your taxable income, which is the final amount that is subject to tax, if you know what your gross income is first. Your gross income is essentially every single dollar you earn that is not tax-exempt, before taking any exemptions or deductions. After claiming all allowable deductions and exemptions, including those for your dependent children, you arrive at your taxable income. Therefore, the only time it doesn’t make sense to claim your child’s exemption is when you have no gross income, rather than zero taxable income.
No Income Necessary
The IRS allows you to file a tax return even if your gross income is below the income threshold requiring you to file one. As a result, you can always file a tax return and claim your child as a dependent even if your taxable income is zero before even claiming the exemption. The IRS will never penalize you for filing a return that reports a negative taxable income resulting in your child’s exemption. It may be a good idea to claim the exemption is in case the IRS makes an adjustment to your return after filing and increases your taxable income. In this situation, the exemption will become valuable to you in that it can shield some of the increase from taxation. If you don’t claim the exemption, you would have to file an amended return to claim it and offset the IRS increase.
Qualifying Children Rules
If you do file the tax return, you should ensure that your child satisfies the requirements to be your dependent each year. The IRS rules require that the child be under the age of 19, or under 24 if a full-time student. The child must also live with your for more than half of the tax year and not provide more than half of their own financial support. If even one requirement is not met, then you cannot claim an exemption for your child.
Ways to Report
For taxpayers who have minimal income and deductions, the IRS Form 1040-EZ is the ideal tax return to prepare since it is short and relatively simple to fill out. However, in any year you decide to claim an exemption for your child, you are no longer eligible to prepare the 1040-EZ. Instead, you must choose between the 1040A and the full-length 1040.
- IRS.gov: Instructions for Form 1040
- IRS.gov: Publication 501; Exemptions, Standard Deduction, and Filing Information; January 2011
- IRS.gov: Publication 17; Your Federal Income Tax; December 2010
- Internal Revenue Service. "Tax Reform Provisions That Affect Individuals." Accessed, Feb. 1, 2020.
- Internal Revenue Service. "Personal Exemptions," Page 1. Accessed Feb. 13, 2020.
- Internal Revenue Service. "Five Things to Remember About Exemptions and Dependents for Tax Year 2017." Accessed Feb. 3, 2020.
- Internal Revenue Service. "Be Tax Ready – Understanding Tax Reform Changes Affecting Individuals and Families." Accessed Feb. 13, 2020.
- Internal Revenue Service. "Publication 501(2016): Exemptions, Standard Deduction, and Filing Information," Page 11. Accessed Feb. 13, 2020.
- Internal Revenue Service. "Personal Exemptions," Page 2. Accessed Feb. 1. 2020.
- Internal Revenue Service. "Publication 501(2017): Exemptions, Standard Deduction, and Filing Information," Page 23. Accessed Feb. 13, 2020.
- Congressional Research Service. "Tax Deductions for Individuals: A Summary," Page 1. Accessed Feb. 13, 2020.
Jeff Franco's professional writing career began in 2010. With expertise in federal taxation, law and accounting, he has published articles in various online publications. Franco holds a Master of Business Administration in accounting and a Master of Science in taxation from Fordham University. He also holds a Juris Doctor from Brooklyn Law School.