Raising kids can be expensive, and some taxpayers financially support other family members as well. Fortunately, the Internal Revenue Service has your back. Although the personal exemptions you could claim for each of your dependents were repealed starting in tax year 2018 under the Tax Cuts and Jobs Act, quite a few tax benefits that require having at least one dependent are still alive and well.
And the IRS is at least a little flexible about who you can claim as a dependent. He can be a qualifying child or a qualifying relative, and “relative” is a loose term. A qualifying relative doesn’t necessarily have to be related to you.
Qualifying Child Rules
Your qualified child doesn’t have to be your biological child. She can be adopted, a stepchild, a foster child, sibling or even the child of any of these individuals, such as a grandchild. However, the following requirements must be met:
- She must be a child younger than age 19, or age 24 if she’s a full-time student.
- She must live in your home for at least half the year, although this doesn’t mean she can’t live away at school or be temporarily absent from your home for other reasons, as long as she intends to return there.
- If she works, she can’t pay more than half her own total support needs. It used to be that you had to establish that you provided more than half of her support, but that rule has been eliminated from the tax code.
The IRS waives the age limits if your child is permanently and totally disabled.
Qualifying Relative Rules
A qualifying relative is generally anyone who lives in your home as a member of your household for the entire year, regardless of whether you’re actually related by blood or marriage. But if you are closely related, your dependent can live elsewhere. An example would be your parent.
But there are some strict income requirements: Your dependent can’t have had more than $4,200 in taxable income as of the 2019 tax year, although this doesn’t include nontaxable Social Security benefits or income earned from a disabled/sheltered workshop. Your child can't pay for more than half his annual support needs.
The IRS hasn’t yet announced income limits for 2020, but any increase would most likely be in the $50 range or so.
There aren’t any age limits, but your qualifying relative can’t also be your qualifying child – or anyone else’s qualifying child, for that matter. This would be the case if a taxpayer who could claim him doesn’t do so because she doesn't have to file a tax return. And in case you’re wondering, no, your spouse can’t be your dependent under the qualifying relative rules. Your in-law can, however.
Some Other Rules
The IRS imposes a few other rules as well, for both qualifying children and qualifying relatives:
- The individual must be a U.S. citizen, resident, U.S. national or a resident of Mexico or Canada, although there are exceptions for adopted children.
- If she happens to be married, she can’t file a joint tax return with her spouse unless it’s solely for purposes of collecting a refund because she has no tax liability.
- You can’t claim any dependents if you can be claimed by another taxpayer as a dependent, and this rule applies to your spouse as well if you’re filing jointly.
- Your dependent must have a Social Security number or the equivalent.
- You can’t claim anyone who works for you, such as your housekeeper or babysitter.
The Child Tax Credit and the “Other Dependent” Credit
So what does all this get you at tax time? It can potentially make you eligible to claim the child tax credit or the new credit for other dependents that went into effect under the terms of the 2018 tax reform. The first is worth $2,000 per qualifying child, and the second is worth $500 per qualifying relative.
The child tax credit tweaks at least one of the usual rules, however: Your qualifying child can be no older than age 16 on the last day of the tax year. Otherwise, she’s your “other dependent” for the smaller of the two tax credits.
The TCJA increased the income limits for claiming these credits significantly. They’re up from $110,000 to $400,000 if you’re married and file a joint return, and you can now earn up to $200,000 if you’re single.
The Child and Dependent Care Credit
The child and dependent care credit is equal to a portion of what you must pay someone to care for your dependents while you work or look for a job. Your dependent must be under age 13 – the IRS reasons that this is young enough to require care – or disabled.
You can claim up to 35 percent of the first $3,000 you pay for one child, or the first $6,000 for two or more children. The percentage depends on your income, but it’s never less than 20 percent. Sending your kids to private school doesn’t count, but the costs of nursery schools and after-school programs do.
The Earned Income Tax Credit
This tax credit gets better as you claim more and more dependents, but it only applies to qualifying children, not qualifying relatives. You can’t claim it if you earn too much – it’s specifically designed to help low income taxpayers. You can claim it if you have no dependents, assuming you meet the income limits, but you’ll only get a maximum of $529 as of the 2019 tax year. This can ratchet up to $6,557 if you have three or more child dependents, depending on your income.
These numbers increase a little in 2020, but not much. The max is $538 if you have no child dependents, up to $6,660 if you have three or more.
Head of Household Filing Status
One of the nicest tax perks available to single taxpayers who have dependents is being able to qualify for head of household filing status. Your dependent can be your qualifying child or qualifying relative. Your child must live with you for more than half the year and you must pay for more than half the cost of maintaining your household.
The IRS makes an exception for some relatives living with you, including your parents, although you’d have to foot the bill for more than half their household expenses if they don’t.
If you and your dependents qualify, you can claim a standard deduction of $18,350 as of the 2019 tax year, rather than the $12,200 standard deduction that’s available to single taxpayers who don’t have dependents and don’t meet these rules. This increases to $18,650 for the 2020 tax year.
Can You Share Dependents With Other Taxpayers?
The IRS has a rule that no two taxpayers can claim the same dependent, but there’s a bit of wiggle room here, too.
If you’re jointly supporting your parent with your siblings or others, it’s possible that none of you pay more than 50 percent of her living costs. You can enter into a multiple support agreement, Form 2120, and submit it to the IRS if you can all reach an agreement as to which of you can claim your parent as a qualifying relative. That individual must pay at least 10 percent of the dependent’s support, however. You can change it each year.
A custodial parent can transfer her right to claim her child as a dependent to the other parent for purposes of claiming the child tax credit. She can sign IRS Form 8332, which the noncustodial parent can then submit with his tax return. This doesn’t apply to head of household filing status, the earned income tax credit or the child and dependent care credit, however.
If you and your ex can’t agree who gets to claim your child, the IRS will apply tiebreaker rules. It will award the dependent to the parent with whom the child lived most during the tax year, typically the custodial parent, or to the parent with the higher adjusted gross income if the child lived with both parents equally.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.