Filing your taxes can be rewarding if you understand all the benefits you can take advantage of, especially if you're one of the lucky taxpayers who can claim dependents. Each dependent you claim is a sure way to reduce your taxes as long as you understand who gets the green light on your tax return. The rules can be a bit cumbersome, but you'll want to pay attention to them all because the people you least expect may qualify as a dependent and save you thousands of dollars.
What you should know about dependents
In a nutshell, a dependent is someone you support. Prior to the implementation of the 2017 Tax Cuts & Jobs Act, you were able to receive a personal exemption for claiming dependents, allowing you to score $4,050 for each person on your return in 2017. These personal exemptions have been suspended from 2018 to 2025 in favor of standard deduction amounts that are nearly double what they used to be.
Now, your objective is to identify all the dependents you can claim on your tax return and then determine if they can qualify you for tax bonuses, including these:
- Child Tax Credit (up to $2,000 per qualifying child under age 17).
- Additional child tax credit (up to $1,400 refundable credit per qualifying child).
- Earned Income Tax Credit (refundable tax credit for up to three dependents).
- Child and Dependent Care Credit (claim a credit for qualifying expenses paid for children under 13).
- Credit for Other Dependents (nonrefundable credit worth $500 for dependents not eligible for child tax credit).
- Head of household (an increase in standard deduction amount over the single filing status).
Don't worry. Once you break it all down or use the IRS free tax filing options, you won't be left spinning your wheels. For starters, make sure that the dependent has a taxpayer identification number (i.e., Social Security number, Individual Taxpayer Identification Number, or an Adoption Taxpayer Identification Number). You'll need this information to qualify for benefits.
Who qualifies as a dependent?
There are two categories of dependents: qualifying child and qualifying relative. The big prize is being able to claim someone as a qualifying child because it gives you a chance to earn more credits on your tax return.
Here's a summary of the qualifications, but keep in mind that there are exceptions in the tax code, so don't be afraid to refer to IRS Publication 501 for more details.
To meet the qualifying child test, you must check the box for these five requirements:
- Age: Your child must be younger than you and under 19 years old. If the child is between the ages of 19 to 24, they must be a full-time student for any five calendar months of the year. Individuals who are "permanently and totally disabled" can qualify at any age.
- Residence: The child must live with you for more than six months of the year (unless the child was born or died within the tax year).
- Relationship: The person must be related to you as your child, stepchild, foster child, adopted child, sibling, stepsibling, or a descendant of one of these.
- Support: The child must not provide more than half of his or her support for the year.
- Joint Return: The child typically cannot be claimed if they are married and file a joint return with their spouse for the year.
On the other hand, claiming the qualifying relative status comes with a slightly different set of rules that you should be aware of:
- Qualifying Child: The person can't be considered your qualifying child or another taxpayer's qualifying child.
- Relationship: The person must live with you all year as a member of your household or be a relative (aunts, uncles, grandparents, stepparents, etc.).
- Gross Income: The person being claimed must have earned less than $4,300 in 2021 (same as in 2020).
- Support: You must provide more than half the person's support for the year.
Don't limit your dependents
It's easy to write-off anyone who is not a family member as not being a dependent. But you could miss out on some valuable tax savings if you don't double-check the rules.
For example, most people don't think about claiming their partner, best friend, non-blood relative, boyfriend, or girlfriend as a dependent on their tax return. But you can add those individuals to your list under qualifying relative if they meet the four rules.
Get rewarded for your support
Don't miss out on claiming dependents if they qualify. You can automatically reduce your taxable income and be in the running for other perks on your tax return.
The best part is there is no limit to the number of dependents you can claim. As long as they check all the boxes, you can position yourself to save thousands of dollars when you file your taxes.