DEPENDENTS

Dependents

In general, you may claim a dependency exemption for each qualifying child or qualifying relative when you either efile your taxes or file them through traditional means. If you are the dependent of another taxpayer, you cannot claim any other person as a dependent.

The qualifying child or relative must be a citizen, resident alien or national of the United States, or a resident of Canada or Mexico. An exception may apply for an adopted child that is not a citizen, national or resident alien.

The qualifying child or relative must not file a joint tax return, unless all the following are true:

• The sole purpose of filing the joint return is to claim a refund.
• No return needs to be filed except to claim a refund.
• The return has no tax liability.

The qualifying child or relative must have a valid identifying number. This number can be any of the following:

• Social Security number
• Individual Taxpayer Identification Number
• Adoption Taxpayer Identification Number

Qualifying Child

Having a qualifying child as a dependent can allow you to claim certain tax benefits, including:

• Head of household filing status
• The Child Tax Credit
• The Additional Child Tax Credit
• The Child and Dependent Care Credit
• The Earned Income Tax Credit
• An additional personal exemption for each dependent

In addition to the conditions the child must meet to qualify, there are additional conditions for each of these tax benefits. See the instructions for each benefit for more details.

A child or relative is considered your qualifying child if he or she meets four tests.

1. Relationship – the person must be related to you in one of these ways:

• Child or stepchild
• Eligible foster child
• Sibling or step-sibling
• A descendant of any of the above

1. Age – at least one of the following must be true:

• Under age 19 at the end of the tax year and younger than the taxpayer claiming the child
• A full-time student under 24 at the end of the year and younger than the taxpayer claiming the child
• Permanently and totally disabled at any time during the year, regardless of age (may be older than the taxpayer claiming the child)

1. Residency – the person must have lived with you more than half of the tax year.

• If the child was born or died during the year, the child is considered to have lived with you the entire year.

1. Support

• The child must have not provided more than half of his or her own support during the year.

If you are divorced or separated from the other parent of the child, or if someone other than yourself can also claim the child as a qualifying child, special rules apply:

• If one of the taxpayers is the parent of the child, that taxpayer will claim the child.
• If more than one of the taxpayers is the parent of the child, the person with whom the child lived the most during the year will claim the child. If the time was equal, the child will be claimed by the parent with the highest adjusted gross income.
• If no taxpayer is the parent of the child, the child will be claimed by the taxpayer with the highest adjusted gross income.

Qualifying Relative

A relative can be your dependent if the person meets four tests.

1. Not a Qualifying Child Test

A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer. If a child would be a qualifying child except for not meeting the residency test, the child may be your qualifying relative. If the child does not live with you, but lives in Canada or Mexico, and meets the gross income test and the support test, the child can be your qualifying relative.

2. Member of Household or Relationship Test

One of these must be true:

• The person lived with you all year as a member of your household.
• The person is related to you in any of these ways:
  • Child or stepchild
  • Eligible foster child
  • Sibling or step-sibling
  • A descendant of any of the above
  • Direct ancestor (parent, grandparent, step-parent, etc.)
  • Niece or nephew
  • Brother or sister of your parent
  • In-laws

3. Gross Income Test

The person must have gross income of less than $3,800 for the year.

4. Support Test

You must provide more than half of the person’s total support for the calendar year. You can figure this by comparing the amount you contributed to that person’s support to the entire amount of support that person received from all sources, including the support the person provided from his or her own funds.

The support test is applied to each individual separately. For example, if you are determining the qualifications of your parents, you must figure the support test for each parent separately.

Expenses that are not directly related to one member of a household should be divided among the members of the household.

Support expenses include:

• Food
• Lodging
• Clothing
• Education
• Medical and dental care
• Recreation
• Transportation
• Ordinary and necessary expenses to live

Dependent Credits

There are several tax credits available to families with dependent children. These credits are intended to reduce tax liability for families who have expenses for caring for dependent children.

Child and Dependent Care

The Child and Dependent Care Credit is available to families who pay childcare expenses. The expenses must have been incurred so that you and your spouse can work or look for work. The credit is based on a percentage of the expenses you pay.

Child Tax Credit

The Child Tax Credit is available to families that have a qualifying child under the age 17. The credit is non-refundable, which means you must have tax liability to claim the credit.

Additional Child Tax Credit

The Additional Child Tax Credit is available to families who have a qualifying child under the age 17 and who did not receive the full amount of the Child Tax Credit because they did not have any tax liability. This credit is refundable, which means you do not have to have any tax liability to claim the credit.

Education Credits

Education tax credits are available to individuals and families who have out-of-pocket post-secondary tuition expenses. The American Opportunity Credit is available to students completing their first four years of post-secondary school. The Lifetime Learning Credit is available to students in any phase of post-secondary education.

Adoption Credit

The Adoption Credit is available to families who have out-of-pocket adoption expenses. You can use the credit to exclude any employer-provided adoption benefits from your income or to offset adoption expenses you have paid.

Child Support

Child support payments are not tax deductible for the payer, nor do they count as taxable income for the payee. If you pay child support, you may be able to claim the child as a dependent. The parent with whom the child lived for the greater part of the tax year generally can claim the child as a dependent.

Release of Claim to Exemption

If you have a child who does not live with you, you may be able to claim the child as a dependent if the parent with whom the child lives signs a release of claim to exemption, Form 8832.

Earned Income Credit

Child support payments that you receive are not counted as earned income when figuring eligibility for the earned income credit.

Adoption ID Number

An Adoption Taxpayer Identification Number (ATIN) is issued by the IRS as a temporary identification number for an adoptive child. This number is assigned when the adopting taxpayers are unable to obtain a Social Security Number (SSN) for the child.

An ATIN is not intended to be a permanent identifying number; it will expire two years after the date of issue or when you receive a valid SSN for the child. Once the adoption is final, you should apply for an SSN for the child.

When you get the SSN, notify the IRS. If the adoption is not final before the ATIN expires, you can apply for an extension. Six months before the end of the two-year period, you will receive instructions from the IRS on how to apply for an extension.

You cannot claim the child as a dependent or claim any childcare expenses for the child without an identifying number.

Who Should Apply

You should apply for an ATIN only if you are in the process of adopting a child and all the following are true:

• The child is legally placed in your home by an authorized adoption agency for legal adoption.
• The adoption is a domestic adoption or is a foreign adoption and the child has a Permanent Resident Alien card or a Certification of Citizenship.
• You cannot obtain the child’s existing SSN even though you have made a reasonable attempt to do so.
• You cannot obtain a new SSN for the child from the Social Security Administration.
• You are eligible to claim the child as a dependent on your tax return.

How to Apply

To apply you must file Form W-7A. To file this form you will need:

• Name of the child
• Birth information
• Placement agency information
• Placement documentation

Placement documentation is the signed documentation that places the child in your care for legal adoption. The type of documentation varies by state. All documentation types should clearly establish the child was placed in your home by an authorized adoption agency for the purpose of adoption.

Generally, this documentation can be any of the following:

• A placement agreement between you and a public or private adoption agency
• A document signed by a hospital official releasing a newborn child to you for adoption
• A court order or other court document ordering or approving the placement of the child with you for legal adoption
• An affidavit signed by an attorney, government official, judge, or similar appointee approving the placement of the child with you pursuant to the state’s legal adoption laws

Regardless of which type of documentation is used, it must include:

• Full name of adoptive parent(s)
• Full name of child
• Name of the placement agency or agent
• Date the child was placed in your home
• Signature of the parent(s) and the official representative of the placing agency

Do not attach original documents when filing Form W-7A. A copy of the documentation is acceptable. The IRS will not return any documents.

An ATIN is not valid for claiming the Earned Income Credit (EIC). If the child qualifies you for EIC, you can file an amended return after you get the child’s SSN.

It takes about 4-8 weeks to receive an ATIN after you submit Form W-7A. If you have not received the ATIN after 8 weeks, contact the IRS at (512) 460-7898.

Kiddie Tax

A child under 19 (or 24 if a full-time student) who meets all the following criteria, and who receives more than $1,900 in investment income, must pay tax (kiddie tax) on that income.

Criteria

The child must:

• Be a full-time student
• Have at least one living parent
• Have not filed a joint tax return
• Not have had enough income to provide at least half of his or her own support

Investment Income

Investment income includes:

• Taxable interest
• Ordinary dividends
• Capital gains
• Rents and royalties
• Taxable Social Security benefits
• Pension and annuity income
• Income received as the beneficiary of a trust

Parent’s Election to Claim Child’s Income

In some cases, the parent can elect to claim the child’s interest, ordinary dividends, and capital gain distributions on the parent’s tax return. The parent can elect to claim the child’s interest if the child:

• Is under 19, or 24 if a full-time student, at the end of the tax year
• Did not have any form of income other than investment income
• Has unearned income of at least $950 but not more than $9,500
• Did not make any estimated tax payments
• Is not filing a married filing joint return

If your child qualifies to make the election, at least one of the following must be true to be able to claim the investment income:

• You are filing a joint return with the child’s other parent.
• You and the child’s other parent are married but filing separately and you have the higher taxable income.
• You were unmarried and treated as unmarried and the child lived with you most of the year.
• You were remarried and you and your new spouse are filing a joint return.
• You were remarried and you and your new spouse are filing separate returns and you have the higher taxable income.

To claim the child’s income on your tax return, you must file Form 8814 with your tax return.

Child Claiming Income

If you or the child do not qualify to claim the child’s investment income on your tax return, a tax return with Form 8615 must be filed for the child. You can also elect to file a return for the child even if the child and you qualify to claim the income on your tax return.

When filing a tax return for the child, the income will be taxed at your tax rate. If your taxable income, filing status, or the net income of other children is not known by the due date of the return, you can estimate the amounts or request an automatic six-month extension to file. If you choose to estimate the amount, you must  file an amended return when all of the information has been determined.

Return Filing

A dependent must file a return if all of his or her income is earned income and is above certain amounts.  And some dependents may have to file a return even if their income is below the amount that would normally require them to file.

The information below explains whether a dependent must file a 2012 return.

Single dependents – Were you either age 65 or older or blind?

No. You must file a return if any of the following apply:
1. Your unearned income was more than $950.
2. Your earned income was more than $5,950.
3. Your gross income was more than the larger of:
a. $950 or,
b. Your earned income (up to $5,650) plus $300.

Yes. You must file a return if any of the following apply:
1. Your unearned income was more than $2,400 ($3,850 if 65 or older and blind).
2. Your earned income was more than $7,400 ($8,850 if 65 or older and blind).
3. Your gross income was more than the larger of:
a. $2,400 ($3,850 if 65 or older and blind), or
b. Your earned income (up to $5,650) plus $1,750 ($3,200 if 65 or older and blind).

Married dependents – Were you either age 65 or older or blind?

No. You must file a return if any of the following apply:
1. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
2. Your unearned income was more than $950.
3. Your earned income was more than $5,950.
4. Your gross income was more than the larger of:
a. $950, or
b.  Your earned income (up to $5,650) plus $300.

Yes. You must file a return if any of the following apply:
1. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
2. Your unearned income was more than $2,100 ($3,250 if 65 or older and blind).
3. Your earned income was more than $7,100 ($8,250 if 65 or older and blind).
4. Your gross income was more than the larger of:
a. $2,100 ($3,250 if 65 or older and blind), or
b. Your earned income (up to $5,650) plus $1,450 ($2,600 if 65 or older and blind).

In addition, a dependent must file a return if:

• Any taxes are owed:
  • Social Security and Medicare taxes on tips not reported to employer
  • Uncollected Social Security and Medicare or railroad retirement taxes on tips not reported to employer or group-term life insurance
  • Alternative minimum tax
  • Recapture taxes
  • Taxes on qualified plans, including IRAs or other type of tax-favored plan
• The dependent received any of the following:
  • Advance earned income credit payments from employers
  • • Wages of $108.28 or more were earned from a church or church organization that is exempt from employer Social Security or Medicare taxes
    • Net earnings from self-employment was at least $400

    Even if not required to file, a dependent should file if:

    • Income tax was withheld from the dependent’s income
    • The dependent qualifies for a refundable credit:
      • Earned Income Credit
      • Additional Child Tax Credit
      • Health Coverage Tax Credit
      • Refundable credit for prior-year minimum tax
      • Refundable American Opportunity Credit

    Responsibility to File

    The child is responsible for filing his or her own tax return and for paying any tax, penalties and interest. If the child cannot file his or her own return due to age or any other reason, the parent or guardian is responsible for filing the return on the child’s behalf.

    If the child cannot sign his or her own tax return the parent can sign the child’s name and add his or her own signature, notating the return was signed “By parent or guardian for minor child.” If a parent or guardian signs the return, that person is authorized by the IRS to represent the child in all matters related to the tax return.

    On federal income tax returns, any income a child receives in return for personal services or labor counts as the child’s income, even if state law provides that the parent is entitled to the income.

    Standard Deduction

    The standard deduction for an individual who can be claimed as a dependent of another taxpayer is the greater of:

    • $950
    • Earned income plus $300, not to exceed the regular standard deduction ($5,950)

    In some circumstances, the standard deduction is not allowed:

    • A married dependent filing a separate return, where his or her spouse itemizes deductions
    • A dependent who files a return for a period of less than 12 months due to a change in accounting period
    • A nonresident or dual-status alien dependent, unless the dependent is married to a citizen or resident alien and chooses to be treated as a U.S. resident for the year

    A person who can be claimed as a dependent on another taxpayer’s return cannot claim his or her own exemption, even if the person who can claim the dependent chooses not to.

    For more information, see IRS Publication 929.

    Multiple Support

    Sometimes no one provides more than half of a person’s support, but two or more people together do provide more than half of the support. In these situations, only one person may claim the dependent exemption, and that person must have provided more than 10% of the individual’s support. If more than one person provided more than 10% of the support, those persons can agree among themselves who will claim the individual as a qualifying relative.

    Each person who provided more than 10% of the individual’s support must sign a statement agreeing not to claim the dependent exemption for the tax year. The person who claims the exemption must keep the signed statements for his or her records, and must identify in his or her return the persons who have agreed not to claim the exemption. Form 2120, Multiple Support Declaration, may be used for this.