When you file your return, you are entitled to a personal exemption of $3,650 ($7,300 for married filing joint) in tax year 2010. In addition to that you may be able to take additional exemption if you have dependents.
The additional exemption is called dependency exemption and it is the same amount ($3,650) per dependents. On top of the exemptions, taxpayers may be able to deduct additional credits such as the child tax, dependent care, educational and earned income.
That is why it is critical to claim as much dependents as you can if those people qualify. You can claim a person as a dependent if the following applies:
- You (or your spouse if filing jointly) are NOT CLAIMED as a dependent on someone else’s return
- The dependent MUST BE a US citizen, US resident alien, US national or a resident of Canada or Mexico for some part of the year
- You can claim a dependent IF that person is your qualifying child or qualifying relative as described in the following:
Qualifying Child Test
1. Relationship Test- The child must be your daughter, son, stepchild, foster child, brother/sister, half-brother/sister, step-brother/sister, or a descendant of any of them (such as grandchild, nephews, nieces, etc.)
2. Age Test – The child must be under the age of 19 at the end of the year OR under the age of 24 at the end of the year and a full-time student or ANY age if permanently and totally disabled. The child must be younger than you or your spouse if the child is not permanently and totally disabled.
3. Support Test – The child must not have provided more than half of his or her own support for the year.
- Example: Your 19-year old son, and a full-time student, worked at McDonald’s and earned $10,000 for the year. Out of those $10,000, he saved the $6,000 and used the other $4,000 to purchase a car and other personal items (cd’s, cell phone, laptops). The amount of your support (housing, clothing, food, insurance, utilities, education) totaled to $7,000. The combined amount towards the support is $11,000 and since your son did not provide more than half of his support for the year ($4,000/$11,000 is less than 50%), you pass the suppoirt test.
- Example 2: Same scenario as example 1 but instead of saving the $6,000 he used the full $10,000 salary to support himself and you only provided $7,000. Since he provided his own support for more 50%, you do not pass the support test and therefore cannot claim your son as dependent.
- Example 3: Same scenario as example 2. Son used his full salary of $10,000 for his own support, you only provided $7,000 but this time you have helped, your parents added another $4,000 for the support for a total support of $21,000. In this case, he did not provide more than 50% of his own support so you pass the support test.
4. Residency Test – The child must have lived with you for at least six months. However, exceptions to this test applies for an abducted child, a child who was born or died during the year, a child of divorced or separated parents and temporary absences (examples are child going to college, military service, business, religion related, etc.)
- Example 1 - Your child live with you for just 5 months and then moved to another state to live with your parents so that you can concentrate on your work. Since the child did not live with your for more than half of the year, you cannot claim the child as your dependent.
- Example 2 – Your child was born on December 31,2010. You can claim your child as a dependent on your 2010 tax return even if he/she just lived with you for just one day for the year 2010.
- Example 3 - Your 18-year-old daughter who is a college student and live in dorm during school year and only lives with you for 2 months. If you keep a room for her for the whole year that she can comeback to, then she still pass the residency test even if she did not live with you for the whole year.
- Example 4 - Your dependent daughter lived with you but she passed away during the month of March of the current tax year. She still passed the residency test even if she did not completed the whole year.
5. Joint Return Test – the child, who is married, cannot file a joint return with their spouse for the year. However, an exception applies if the child filed a joint return for them to claim a refund.
- Example of the exception: Your 18-year old son and his 17-year-old wife have earned income of $2,000 and are not required to file a return. But in order to claim the refund for the $100 withheld on his check, the couple filed a joint return. Your can still claim your son as your dependent even if he filed for joint return.
6. Special test for a qualifying child of more than one person - For a child who is a qualifying child (a child who meets all of above 5 test) of more than one person, you must be the person entitled to claim the child as a qualifying child. To determine which person can treat the child as a qualifying child, the following tie-breaker rules apply:
- The parent has the first priority claim. Grandparents, aunts, uncles, brothers or sisters are only second to the parent in the chain claim.
- Two person as parents but parents are not filing jointly: If the parents do not file a joint return but both parents claim the child as a qualifying child (meeting the 5 other test) , the parent with whom the child lived for the longer period of time during the year wins the tie-break.
- Two person as parents who are not filing jointly but the child lived with each parent the same amount of time during the year – the parent with the higher adjusted gross income (AGI) wins the tie-break.
- None of the persons are the child’s parents – the person with the highest adjusted gross income (AGI) wins the tie-break
- The parents of the child can claim the child as a qualifying child but no parent claims the child – then nobody can claim the child as a qualifying child , unless that individual’s adjusted gross income is higher than the highest adjusted gross income of any parent of the child.
( Note: Children of divorced or separated parents – In general, due to the residency test, a child of divorced or separated parent is the qualifying child of the CUSTODIAL parent. However, the child will be treated as a qualfiying child of the NONCUSTODIAL parent if the custodial parent signs a written declaration that he or she will not claim the child as a dependent for the year, and the non-custodial parent attaches this written declaration to his or her return.)
Qualifying Relative Test:
1. Not A qualifying Child Test- The individual cannot be your qualifying child or the qualifying child of any other taxpayer. The qualifying child is described previously.
Examples: These people are NOT YOUR QUALIFYING CHILD:
- Failed the Age Test: Any person regardless of relationship who failed the age test. Examples are your brother who is older than you, your 19-year-old son who is not a full-time student, your 30-year-old daughter who is not permanently and totally disabled, your parents, your grandparents, your uncle, your aunts, father-in-law, mother-in-law, etc.
- Failed the Relationship Test: Can be any person who is not related to you (by IRS definition). For example, your cousin (yap, cousins are not related to you according to the IRS) and your friend. However, these people must meet the rest of the QUALIFYING RELATIVE test for you to be able to claim them as dependent such as living in your house or member of your household ALL year, not making more than $3,650, and you must provide more than half of the support.
2. Member of Household or Relationship Test – The individual must lived with you all year as a member of your household (and your relationship must not violate local law) OR must be related to you but do not have to live with you as a member of your household. Examples of this relative who does not have to live with you are:
- Your child, step child, foster child, or a descendant of any of them
- Your siblings, half siblings or step siblings – (brothers or sisters)
- Your parents, grandparents, step parents or other direct ancestor but not foster parent
- A brother or sister of your parents
- Your in-laws (son, daughter, father, mother, brother, sister). any of these relationships established by marriage are not ended by death or divorce.
3. Gross Income Test – The individual’s gross income for the year must be less than the amount of personal exemption for the year (for 2010, the amount must be less than $3,650)
- Example 1: Your 25-year-old brother, who just graduated from college, lived with you for more than half of the year. You have been supporting him for 10 1/2 months and then suddenly he found a job on the last month of the year (December) and he earned $3,700. Since he made more than $3,650, you do not pass the test and cannot claim your brother on your tax return.
4. Support Test – You must provide more than half of the individual’s support for the year.
- Example 1: Your 27-year-old single son lost his job and went back to your home. He only provided $3,000 towards his support while you provided $4,000. You pass the support test and can claim him as a dependent assuming all the other 3 test are met as well.
- Example 2: Your 30-year-old niece (daughter of your sister) move to your home and lived with you for more than half of the year. She lost her job for the year and only earned $3,500. She used the full $3,500 towards her own support while you provided $5,000. On top of that, she had helped from her father and provided $1,000 support and from her grandparents and provided another $1,000 support for a total support of $10,500. Since you did not provide more than half of the person’s support for the year ($5,000/$10,500), you do not pass the support test and therefore cannot claim your niece as a dependent.
Source: irs.gov Publication 17.