The federal government taxes many forms of income, from wages and salaries to interest and gambling winnings, but it also lets you claim tax breaks that let you keep some of your money tax-free. The Internal Revenue Service offers a tax exemption for each dependent you claim on your tax return. The dependent exemption is technically separate from the standard deduction, but both tax breaks function in the same way: they reduce your taxable income, which ultimately cuts the taxes you owe.
Standard Deductions vs. Exemptions
The standard deduction is a tax break you can claim on your tax return instead of claiming itemized deductions, which include things like property taxes, mortgage interest and gifts to charity. Standard deductions don't depend on whether you have children or other dependents; they depend only on your tax filing status. According to the IRS, the standard deduction is $6,100 for single filers and $12,200 for joint filers for the 2013 tax year. The dependent exemption lets you slash another $3,900 off your taxable income for each child you claim, beyond your standard deduction or itemized deductions. You can also claim a personal exemption of $3,900 for yourself, and if you're filing a joint return, your spouse.
Dependent Exemption Requirements
Cutting your taxable income by $3,900 per child can result in thousands of dollars of tax savings, but not every child qualifies. To be considered a qualifying child dependent, your child must be under age 19, or 24 if a full-time student, have lived with you at least half the year and must not file a joint tax return or provide more than half his own support for the year. If your child does not meet these requirements, you can claim him as a qualifying dependent relative if his gross income is less than $3,900 and you provide more than half of his support for the year.
The exemption you can claim for each dependent can change from one tax year to the next because the IRS makes adjustments to account for price fluctuations in the economy. Personal and dependent exemptions cut taxable income by $3,800 on 2012 tax returns. The standard deduction also changes over time: For the 2012 tax year, single taxpayers have standard deduction of $5,950 and joint filers have a standard deduction of $11,900.
Dependents With Income
If someone you claim as a dependent earns income, the tax break you get may increase the dependent's taxes. A dependent can claim the standard deduction just like other single taxpayers, but a dependent doesn't get a personal exemption. In other words, when you claim someone as a dependent, you use up their personal exemption to reduce your own taxes.
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