If your parents claim you as a dependent, it can significantly reduce their total tax bill. However, just because your parents claim you doesn't mean that you are off the hook for filing taxes. Dependents who earn a certain amount of money must file taxes. Even if you don't have to file, you may want to in order to claim a tax refund.
Benefits of Claiming a Dependent
Parents reap multiple tax benefits when they list their child as a dependent. The individual or couple claiming a dependent receives an extra $3,900 personal exemption as of publication. If the parents choose to itemize their deductions, they can deduct their child's medical expenses. Even if they don't itemize, they can claim any applicable educational credits. The earned-income tax credit and the child tax credit also decrease total tax liability and are only available to adults claiming dependents.
Being a Dependent
Before your parents claim you as a dependent, make sure that you really are one. The Internal Revenue Service lays out very specific qualifications to determine who is a dependent and who isn't. If you're married or are claiming your own dependent, your parents can't claim you. The person claiming you must provide you with at least half of your financial support during the year. You also must have lived with your parents for more than half of the previous year, although the IRS allows exceptions for absences due to vacation, business, education, illness or military service.
Who Must File
A dependent child who works and earns more than $3,000 may or may not need to file a tax return. According to the IRS, if you're a dependent with earned income of more than$6,100 or unearned income of more than $1,000, you must file a tax return. Earned income is income from wages and professional fees. Interest income, capital gains, dividends and survivor annuities are all sources of unearned income. Even if you don't technically need to file, you may want to consider doing so. If you're due a refund, filing a tax return is the only way for you to access his money.
A dependent child files taxes on a Form 1040 just like any other working individual. However, your tax return is unique, because you can't claim the same amount of deductions and exemptions. The IRS lowers the standard deduction for dependent returns, which means your taxable income will be higher. Since the person who claims you gets an extra exemption on your behalf, you forfeit the value of your own personal exemption when you file.
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